Hercules Technology Growth Capital Inc.’s (HTGC) fourth quarter 2010 distributable net operating income (DNOI) came in at 26 cents per share, marginally up from the Zacks Consensus Estimate of 22 cents. This compares favorably with the DNOI of 25 cents in the prior quarter, but missed the prior-year quarter’s DNOI of 28 cents.
For the full year, DNOI was 91 cents per share substantially outpacing the Zacks Consensus Estimate of 80 cents but substantially lagging the prior period DNOI of $1.30.
Better-than-expected results in the quarter were attributable to a rise in total investment income and lower net realized loss on investments partially offset by higher operating expenses. Additionally, Hercules ended the quarter with a strong balance sheet and a high level of liquidity.
Quarter in Detail
Hercules’ total investment income for the reported quarter came in at $17.5 million, up 5.1% from $16.7 million in the prior-year quarter. Total investment income also topped the Zacks Consensus Estimate of $16.0 million. The increase was attributable to higher interest income, partly offset by lower total fees.
For fiscal 2010, Hercules’ total investment income was $60.2 million, a decline of 18.9% from $74.3 million in the prior year. The fall was due to lower interest income and total fees. However, total investment income beat the Zacks Consensus Estimate of $59.0 million.
Total operating expenses were $8.1 million, up 10.5% from $7.3 million in the year-ago quarter. This increase was primarily a result of higher employee compensation and general and administrative expenses. On a year-over-year basis, interest expense increased 12.7% to $2.3 million and loan fees increased 8.8% to $0.3 million.
Net investment income (before investment gains and losses) for the quarter came in at $9.5 million or 24 cents per share compared with $9.4 million or 26 cents per share in the year-ago quarter. The increase was mainly attributable to higher interest earned on debt investments.
Net realized loss on investments was $11.2 million compared with $11.3 million in the year-ago quarter.
Business Highlights
The fair value of Hercules’ total investment portfolio was approximately $472.0 million as of December 31, 2010 compared with $375.0 million as of December 31, 2009. During the year, the company provided approximately $523.0 million to the new and existing portfolio companies.
As of December 31, 2010, Hercules’ net asset value was $9.50 per share, compared with $9.36 as of September 30, 2010. The increase was primarily attributable to an increase in operating earnings for the quarter and the accretive capital raise completed in the fourth quarter.
Dividend Update
Concurrent with the earning release, Hercules declared a quarterly dividend of 22 cents per share. The company hiked its quarterly dividend by 10% from 20 cents per share. The dividend will be paid on March 17, 2011 to shareholders of record as of March 10, 2011.
Our Viewpoint
Despite the capital market disruption and the sluggish economic recovery, a steady pace of new investments by venture capitalists is expected. As a result of this, new investment opportunities are starting to open up, though we remain cautious about Hercules’ investment and credit management strategies.
One of the closest competitors of Hercules, Triangle Capital Corporation (TCAP) is scheduled to announce its fourth quarter results on March 10.
Hercules currently retains a Zacks #4 Rank, which translates into a short-term “Sell” rating. Also, considering the fundamentals, we maintain our long-term “Underperform” recommendation on the stock.
HERCULES TECH (HTGC): Free Stock Analysis Report
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