800-742-7730     This email address is being protected from spambots. You need JavaScript enabled to view it.     Offices     News     Family of Companies

NHLD logo
NAM Logo
NationalInsurance Logo
vfin logo
GC logo

FS Investment Corporation - Initiation Note

FS Investment Corporation

NEUTRAL (FSIC, $9.82)

Strong Origination Platform with Good Asset Quality but Limited Growth Prospects - Initiating With A NEUTRAL Rating And $11 Price Target.

November 3, 2015

Christopher R. Testa

212.417.7447

This email address is being protected from spambots. You need JavaScript enabled to view it.


Investment Conclusion. We are initiating coverage of FS Investment Corporation (FSIC) with a NEUTRAL rating and $11 price target. FSIC is the public BDC of the Franklin Square family, which includes three BDCs that are non-traded. FSIC has $4.0 billion of investments and the entire platform has $15.4 billion in assets under management (AUM). This is advantageous for FSIC as the company has SEC exemptive relief to co-invest among all four BDCs. FSIC is sub-advised by GSO, the credit platform of Blackstone (NYSE: BX-NR-$34.59). GSO, with $81 billion in AUM, is one of the largest alternative asset managers in the world. GSO has its own independent underwriting process usually done simultaneously with FSIC’s own underwriting process. Under the GPO (Group Purchasing Organization), which all of FSIC’s portfolio companies receiving direct originations are eligible to enroll in, Blackstone will assist the portfolio companies in bundling supply orders together and assist them in realizing cost savings. This further augments the pipeline for direct originations and is a differentiating factor from FSIC’s peers. While the company is only 46.3% first lien by fair value, attachment point leverage is reasonable at 4.8x, which has risen from 4.0x as the company has continued to increase its direct originations relative to broadly syndicated loans. FSIC’s nonaccruals have not breached 50 bps of fair value going back to 2012 although the company’s large energy exposure (12% of portfolio fair value as of 6/30/15) is something that we think will test the ability of the portfolio to withstand significant stress. Our $11 price target implies an estimated 2016 P/NII (Price/NII) of 11.1x, dividend yield of 8.1%, and P/NAV (Price/NAV) of 1.09x compared to the BDC sector averages of 8.4x, 11.8%, and 0.84x, respectively.

FSIC

* Adjusted NII = NII + capital gains incentive fee + excise taxes + other one-time items

Source: S&P Capital IQ, National Securities Corporation Estimates


Request Document


Important Disclosures

This publication does not constitute and should not be construed as an offer or the solicitation of any transaction to buy or sell any securities or any instruments or any derivatives of the securities mentioned herein, or to participate in any particular trading strategies. Although the information contained herein has been obtained from recognized services, and sources believed to be reliable, its accuracy or completeness cannot be guaranteed. Opinions, estimates or projections expressed in this report may make assumptions regarding economic, industry, company and political considerations, and constitute current opinions, at the time of issuance, which are subject to change without notice.

This report is being furnished for informational purposes only, and on the condition that it will not form a primary basis for any investment decision. Any recommendation(s) contained in this report is/are not intended to be, nor should it / they construed or inferred to be, investment advice, as such investments may not be suitable for all investors. When preparing this report, no consideration to one’s investment objectives, risk tolerance and other individual factors was given; as such, as with all investments, purchase or sale of any securities mentioned herein may not be suitable for all investors. By virtue of this publication, neither the Firm nor any of its employees shall be responsible for any investment decisions. Before committing funds to ANY investment, an investor should seek professional advice. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice, or to be used by anyone to provide tax advice. Investors are urged to consult an independent tax professional for advice concerning their particular circumstances. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, either expressed or implied, is made regarding future performance.

National Securities Corporation (NSC) and its affiliated companies, shareholders, officers, directors and / or employees (including persons involved with the preparation or issuance of this report) may, from time to time, have long or short positions in, and buy or sell the securities or derivatives (including options) thereof, of the companies mentioned herein. One or more directors, officers, and / or employees of NSC and its affiliated companies, or independent contractors affiliated with NSC may be a director of the issuer of the securities mentioned herein. NSC and / or its affiliated companies may have managed or co-managed a public offering of, or acted as initial purchaser or placement agent for a private placement of any of the securities of any issuer mentioned in this report within the last three (3) years, or may, from time to time, perform investment banking or other services for, or solicit investment banking business from any company mentioned in this report.

This research may be distributed by affiliated entities of National Securities Corporation (NSC). Affiliated entities of NSC may include, but are not limited to, vFinance Investments, Inc., National Asset Management and other subsidiaries of our parent company, National Holdings Corporation.

The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and the income they produce if any, may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors. Furthermore, NSC may follow emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. This report does not take into account the particular investment objectives, financial situation or needs of individual investors. Before acting on any advice or recommendation in this material, the investor should exercise independent judgment as to whether it is suitable in light of his/her particular circumstances and, if necessary, seek professional advice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance.

Additional information relative to securities, other financial products, or issuers discussed in this report is available upon request. Neither this entire report, nor any part thereof, may be reproduced, copied or duplicated in any form or by any means without the prior written consent of National Securities Corporation. All rights reserved. NSC is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corporation (SIPC).

For disclosures inquiries, please call us at 1-800-417-8000 and ask for your NSC representative, or write us at National Securities Corporation, Attn. Supervision Department, 410 Park Avenue, 14th Floor, New York, NY 10022, or visit our website at www.nationalsecurities.com

NHLD logo
NAM Logo
NationalInsurance Logo
vfin logo
GC logo

Newsletter Sign Up

News letter