Scott Kennedy’s BDC Earnings Series: Assessing Golub Capital BDC’s Performance For Calendar Q1 2024
Summary
This earnings assessment article reviews GBDC’s NAV and NII performance during Q1 2024 and compares results to my expectations. Earnings remain a key driver to stock performance.
GBDC’s quarterly NAV basically matched expectations (within 0.5%). GBDC’s adjusted NII was a minor underperformance (within range). GBDC remains a well-run BDC.
GBDC’s minor quarterly adjusted NII underperformance likely resided within the company’s low quarterly originations which directly led to a lower investment portfolio size versus my expectations.
No change in GBDC’s percentage recommendation ranges or risk/performance rating. GBDC is currently deemed slightly overvalued (SELL). A pullback would first need to occur prior to myself considering a purchase.
Due to GBDC’s recent decrease in incentive fees paid to its external manager and upcoming affiliate merger, this BDC received a recommendation range upgrade/price target increase last quarter (February 2024).
Formatting Change to this Article Series
We have recently changed the format of this earnings-related article series (less wording, more visual images). This process remains ongoing and future changes will likely occur.
Commentary
Quarterly NAV Fluctuation: Basically an Exact Match (Within a 0.5% Variance).
NII: A Minor Underperformance ($0.02 Per Share Variance).
An “as expected” quarter regarding Golub Capital BDC’s (GBDC) NAV in my opinion. GBDC generated a very minor quarterly NAV gain which was correctly anticipated. As such, GBDC’s underlying portfolio company valuations (both realized and unrealized) largely matched expectations.
A slightly underperforming quarter regarding GBDC’s adjusted NII in my opinion. I believe this likely resided within GBDC’s quarterly loan originations. GBDC reported loan originations of only $22 million during the calendar first quarter of 2024. Simply put, this came in below my expectations. In comparison, GBDC reported loan originations of $59 million during the prior quarter. This directly led to an overall smaller investment portfolio size when compared to my expectations which negatively impacted adjusted NII. That said, I will also have to review GBDC’s weighted average annualized yield when the company officially reports results on 5/6/2024.
As of 12/31/2023, GBDC had 9 portfolio companies on non-accrual status. GBDC estimates the company will continue to have 9 portfolio companies on non-accrual status as of 3/31/2024. That said, this includes 1 non-accrual portfolio company exit/disposition (likely partially/fully written-off; likely a negative catalyst/trend), 2 previous non-accrual portfolio companies being placed back on accrual status (a positive catalyst/trend), and 3 portfolio companies being placed on non-accrual status during the quarter (a negative catalyst/trend). Specific portfolio company names were not provided yet. I will fully analyze these credit-related events (and compare to my underlying portfolio company credit tracking/modeling) when GBDC officially announces earnings next month.
As of 3/31/2024, GBDC’s non-accrual percentage, based on amortized cost basis and FMV, was estimated to be 1.5% and 0.9%, respectively. This was relatively unchanged/a very minor decrease from 1.7% and 1.1% as of 12/31/2023, respectively. So, another pretty good quarter for GBDC from a general credit risk perspective. That said, as noted last quarter, I continue to anticipate credit risk/portfolio pressure on several MM investments over the next several quarters. Just something to be mindful of. Credit risk will remain a key metric to track over the foreseeable future.