The favorable equity market continues to benefit
Hercules Technology Growth Capital, Inc.
), as the company reported its fifth consecutive earnings beat
after the closing bell on Feb 27. The company's fourth-quarter
2013 distributable net operating income (DNOI) came in at 34
cents per share, outpacing the Zacks Consensus Estimate of 31
cents. This also compared favorably with the year-ago DNOI of 27
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Results benefited from improvement in interest and fee income as
well as disciplined expense management. Overall, Hercules
Technology ended the quarter with an impressive performance,
comprising a higher level of liquidity.
For the full year 2013, Hercules Technology recorded earnings per
share of $1.34 versus $1.07 in 2012. Earnings for the year also
comfortably surpassed the Zacks Consensus Estimate of $1.23.
DNOI grew 44.4% year over year to $20.5 million. For the full
year, DNOI came in at $79.0 million, rising 51.0% from $52.3
million in 2012.
Performance in Detail
Hercules Technology's total investment income was $33.2 million,
up 21.2% from $27.4 million in the prior-year quarter. This was
driven by a 15.8% rise in total interest income and 65.9%
increase in total fees. However, the figure lagged the Zacks
Consensus Estimate of $37.0 million.
For 2013, total revenue came in at $139.7 million, up 43.3% from
$97.5 million in 2012. Moreover, total revenue surpassed the
Zacks Consensus Estimate of 133.0 million.
Total operating expenses (excluding interest expense and loan
fees) were $14.3 million, almost in line with prior-year quarter
figure. Expenses were under control in the reported quarter due
to a 42.3% decline in total employee compensation. However, this
was partly offset by a rise of 15.6% in interest expense, 56.0%
in loan fees and 27.3% in general and administrative costs.
As of Dec 31, 2013, the weighted average cost of debt comprising
interest and fees, was 6.4% versus 6.3% as of Sep 30, 2012.
Net investment income (before investment gains and losses) for
the quarter came in at $18.9 million, up 44.3% year over year.
The fair value of Hercules Technology's total investment
portfolio was $910.3 million as of Dec 31, 2013, down 7.4% from
$983.4 million as of Sep 30, 2013. In the quarter, the company
provided approximately $126.0 million in debt commitment to new
and existing portfolio companies.
As of Dec 31, 2013, Hercules Technology's net asset value was
$10.51 per share, compared with $9.75 as of Dec 31, 2012.
Hercules Technology's efficient capital deployment activities are
impressive and these will keep investors in its favor. The
company hiked its dividend twice in 2013. We expect the company
to continue enhancing shareholder value in the forthcoming
quarters, given its solid liquidity position. Moreover, Hercules
Technology's portfolio expansion and its solid Initial public
offering pipeline will expectedly boost profitability.
However, the uncertain economic environment might increase the
cost of funding and limit the company's growth going forward.
Currently, Hercules Technology carries a Zacks Rank #3 (Hold).
Some better-ranked financial organizations include
Apollo Investment Corporation
Gladstone Investment Corporation
Horizon Technology Finance Corporation
). All these stocks have a Zacks Rank #2 (Buy).