Stellus Capital Investment Corp (SCM) Stock Analysis and Metrics

Sector: Financial Services Industry: Asset Management CIK: 0001551901

Market Cap 141.82 Mn

P/B 0.83

P/E 14.50

P/S 4.09

ROIC (Qtr) 6.76

Div Yield % 13.02

Rev 1y % (Qtr) -0.84

Total Debt (Qtr) 632.32 Mn

Debt/Equity (Qtr) 1.67

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About

Stellus Capital Investment Corp, known as SCM, operates as a closed-end, non-diversified management investment company in the business development sector. The company specializes in providing debt financing to middle-market companies in the United States, a niche it identified as underserved by traditional lenders. SCM was established in 2012 and has since grown to become a significant player in the middle-market lending landscape. SCM's primary business activities revolve around originating and investing in private middle-market companies. This...

Stellus Capital Investment Corp, known as SCM, operates as a closed-end, non-diversified management investment company in the business development sector. The company specializes in providing debt financing to middle-market companies in the United States, a niche it identified as underserved by traditional lenders. SCM was established in 2012 and has since grown to become a significant player in the middle-market lending landscape.

SCM's primary business activities revolve around originating and investing in private middle-market companies. This is achieved through first lien, second lien, and unsecured debt financing, often accompanied by equity co-investments. The company's revenue generation is primarily from the origination and investment in these companies, as well as the collection of interest and principal payments on its debt investments. SCM's product and service offerings include debt financing, equity co-investments, and portfolio company monitoring and management.

The company's investment strategy is opportunistic and flexible, with a focus on direct origination opportunities. It seeks to maintain a diversified portfolio across companies, geographies, industries, and investment types, emphasizing capital preservation through superior credit selection and risk mitigation. SCM's competitive strengths lie in its experienced investment team, established and rigorous investment and monitoring process, and demonstrated ability to structure investments creatively. The company's investment adviser, Stellus Capital Management, has built long-term relationships with various stakeholders in the middle-market sector, providing a competitive advantage in identifying investment opportunities.

SCM's portfolio composition is diverse, with 93 investments in private middle-market companies as of December 31, 2023. These investments span various industries, including business services, retail, general industrial, government services, healthcare, software, and specialty finance. The company's weighted-average annual yield on its debt investments is approximately 11.1%.

SCM's investment process involves several levels of review to identify potential risks. The company applies its expertise to screen investment opportunities and conducts rigorous diligence on each opportunity. The investment committee, consisting of Robert T. Ladd, Dean D'Angelo, Joshua T. Davis, and W. Todd Huskinson, reviews and approves all investments.

SCM takes an active approach in monitoring all investments, including regular reviews of financial performance and discussions with management. The company uses an investment ranking system to characterize and monitor the credit profile and expected level of returns on each investment in its portfolio.

SCM's net asset value per share is determined quarterly by dividing the value of total assets minus liabilities by the total number of shares outstanding. The company's net asset value per share was $12.35 as of December 31, 2023.

Investment thesis

Bull case

Tangible assets of 1.03B provide exceptional 1605.66x coverage of deferred revenue 640637, showing strong service capability backing.
Cash position of 9.02M provides strong 14.09x coverage of deferred revenue 640637, ensuring service delivery capability.
Cash position of 9.02M fully covers payables of 7.69M by 1.17x, showing strong vendor relationship management.
Tangible assets of 1.03B provide robust 1839.61x coverage of receivables 559163, showing strong asset quality.

Bear case

Operating cash flow of (65.24M) provides thin coverage of dividend payments of (44.53M) with a 1.46 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
Operating cash flow of (65.24M) provides insufficient coverage of deferred revenue obligations of 640637, which is -101.83x, raising concerns about future service delivery capabilities.
Operating cash flow of (65.24M) provides minimal -33.49x coverage of tax expenses of 1.95M, suggesting potential tax planning inefficiencies or unsustainable tax positions.
Free cash flow of (65.24M) represents just -1.10x of debt issuance 59.09M, suggesting concerning reliance on leverage rather than internal cash generation for growth.
Operating cash flow of (65.24M) is outpaced by equity issuance of 26.71M (-2.44 ratio), indicating concerning reliance on equity markets for funding operations.

Peer comparison

Companies in the Asset Management

S.No.	Ticker	Company	Market Cap	P/E	P/S	Total Debt (Qtr)
1	BLK	BlackRock, Inc.	199.59 Bn	85.40	21.98	15.04 Bn
2	BN	BROOKFIELD Corp /ON/	103.94 Bn	31.52	5.64	262.97 Bn
3	AMP	Ameriprise Financial Inc	88.69 Bn	55.02	7.20	5.89 Bn
4	BX	Blackstone Inc.	88.51 Bn	49.39	10.93	12.89 Bn
5	KKR	KKR & Co. Inc.	55.86 Bn	28.33	13.23	53.12 Bn
6	STT	State Street Corp	46.52 Bn	21.77	3.91	34.72 Bn
7	NTRS	Northern Trust Corp	34.14 Bn	33.31	6.71	15.64 Bn
8	RJF	Raymond James Financial Inc	32.89 Bn	37.63	4.14	5.10 Bn

Industry comparisons

Current Valuation	Value	Ind Avg
EV to Assets EV to Assets	0.29	0.94
EV to Cash from Ops. EV/CFO	-11.33	41.10
EV to Debt EV to Debt	0.46	15.28
EV to EBIT EV/EBIT	18.38	23.47
EV to EBITDA EV/EBITDA	13.71	47.80
EV to Free Cash Flow [EV/FCF] EV/FCF	-11.33	38.62
EV to Market Cap EV to Market Cap	2.07	7.81
EV to Revenue EV/Rev	8.49	27.38
Price to Book Value [P/B] P/B	0.83	2.34
Price to Earnings [P/E] P/E	14.50	11.81

Dividend Metrics	Value	Ind Avg
Dividend Coverage Ratio Div Coverage (Qtr)	0.69	4.66
Dividend Payout Ratio % Div Payout % (Qtr)	147.00	-5.56
Dividend per Basic Share Div per Share (Qtr)	1.59	1.73
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr)	-69.31	49.83
Interest Coverage Int. cover (Qtr)	1.97	25.16

Growth Metrics	Value	Ind Avg
Capex Growth (1y) % Capex Growth (1y) %	0.00	-35.10
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr)	-76.61	15.43
Dividend Growth (1y) % Div 1y % (Qtr)	-0.50	1.65
EBIAT Growth (1y) % EBIAT 1y % (Qtr)	-22.02	-90.82
EBITDA Growth (1y) % EBITDA 1y % (Qtr)	-5.07	35.24
EBIT Growth (1y) % EBIT 1y % (Qtr)	-19.28	-22.13
EBT Growth (1y) % EBT 1y % (Qtr)	-35.04	-163.05
EPS Growth (1y) % EPS 1y % (Qtr)	-46.00	-20.61
FCF Growth (1y) % FCF 1y % (Qtr)	-330.73	220.21
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr)	-4.56	-53.96

Liquidity Ratios	Value	Ind Avg
Asset Utilization Ratio Asset Util Ratio (Qtr)	0.10	0.22
Cash Payout Ratio Cash Payout (Qtr)	-0.68	0.36
Cash Ratio Cash Ratio	0.00	0.38
Current Ratio Current Ratio	0.00	0.86
Debt to Equity Ratio Debt/Equity (Qtr)	1.67	0.70
Interest Cover Ratio Int Coverage (Qtr)	1.97	25.16
Times Interest Earned Times Interest Earned (Qtr)	1.97	25.16

Profitability	Value	Ind Avg
EBITDA Margin % EBITDA Margin % (Qtr)	64.40	-114.76
EBIT Margin % EBIT Margin % (Qtr)	64.39	-127.24
EBT Margin % EBT Margin % (Qtr)	31.67	-150.97
Gross Margin % Gross Margin % (Qtr)	77.60	67.88
Net Profit Margin % Net Margin % (Qtr)	29.80	-148.68

Research Tools

Stellus Capital Investment Corp (NYSE: SCM)

About

Investment thesis

Bull case

Bear case

Peer comparison

Industry comparisons

Research Tools

Stellus Capital Investment Corp (NYSE: SCM)

About

Investment thesis

Bull case

Bear case

Peer comparison

Industry comparisons

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