Hercules Technology Growth Capital Inc.’s (HTGC) second quarter 2010 change in net assets was negative 14 cents per share significantly missing the Zacks Consensus Estimate of positive 19 cents. However, this compares favorably with the change in net assets of negative 38 cents in the prior-year quarter.
Results for the reported quarter benefited primarily from a year-over-year decline in operating expenses and a net realized gain in investment income compared with a loss in the prior-year quarter. Hercules ended the quarter with a much stronger balance sheet and a high level of liquidity.
Quarterly Details
Hercules’ total investment income for the quarter came in at $14.5 million, up 16% from $12.5 million in the prior quarter, but down 25.6% from $19.5 million in the prior-year quarter. Total investment income topped the Zacks Consensus Estimate of $14.0 million. The year-over-year growth in investment income was attributable to a rise in interest income, fee acceleration and one-time fees.
Total operating expenses were $7.6 million for the quarter, down 1.3% from $7.7 million in the year-ago quarter. This decrease is primarily attributable to lower general and administrative expenses. On a year-over-year basis, interest expense was flat at $2.1 million while loan fees decreased 7.0% to $0.3 million.
Net investment income (before investment gains and losses) for the quarter came in at $6.9 million or 19 cents per share, compared with $5.6 million or 16 cents per share in the prior quarter and $11.8 million or 34 cents per share in the year-ago quarter. The decrease from the year-ago quarter was primarily due to lower fees and lower interest earned.
Net realized gain from investment income was $3.4 million compared with a net realized loss on investment income of $4.2 million in the year-ago quarter.
The fair value of Hercules’ total investment portfolio was approximately $431.5 million as on June 30, 2010 compared with $380.0 million as of Mar 31, 2010. The company funded and restructured approximately $145.0 million to the new and existing portfolio companies during the quarter.
Net Asset Value
As of Jun 30, 2010, Hercules’ net asset value was $9.80 per share, compared with $10.11 per share as of Mar 31, 2010 and $10.29 per share as of Jun 30, 2009. The decline in net asset value from the prior quarter was due to the unrealized depreciation of $14.9 million in the investment portfolio.
Share Repurchase Update
During the quarter, Hercules repurchased 377,708 shares at an approximate average cost of $9.17 per share for a total cost of approximately $3,460,000. For the six month ended Jun 30, 2010, repurchases totaled 402,833 shares at an average cost of $9.18 for a total cost of approximately $3,699,000. The repurchase program expires in August 2010.
Dividend Update
Concurrent with the earning release, Hercules declared a quarterly dividend of 20 cents per share. The dividend will be payable on Sep 17, 2010 to shareholders of record as of Aug 12, 2010. This would represent the company’s twentieth consecutive dividend payment since its initial public offering.
Our Take
Hercules is a well capitalized specialty finance company providing debt and equity growth capital to technology and life science companies at all stages of development. Due to the gradual recovery of the overall economic condition, many technology companies are surpassing others with respect to earnings. However, the company has started experiencing growth led by improvement in valuations within its portfolio of companies.
Hercules currently retains a Zacks #4 Rank, which translates into a short-term Sell rating indicating slight likelihood of downward pressure on the shares over the near term. However, considering the fundamentals, we are maintaining our Neutral recommendation on the stock in the long term.
HERCULES TECH (HTGC): Free Stock Analysis Report
Zacks Investment Research
