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1. Company Snapshot

1.a. Company Description

Stellus Capital Investment Corporation is a business development company specializing in investments in private middle-market companies.It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment.The fund prefers to invest in US and Canada.


The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.

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1.b. Last Insights on SCM

Stellus Capital Investment Corporation's recent performance was driven by its solid operating results for the quarter ended September 30, 2024, with net investment income of $0.39 per share and core net investment income of $0.40 per share. The company's ability to cover its regular dividend of $0.40 per share is a positive indicator of its financial health. Additionally, the declaration of a monthly dividend of $0.1333 for each of January, February, and March 2025, totaling $0.40 per share, demonstrates the company's commitment to returning value to shareholders.

1.c. Company Highlights

2. Steady Performance Amidst Challenging Environment

The company reported a GAAP net investment income of $0.32 per share, with core net investment income coming in at $0.34 per share, slightly ahead of estimates of $0.3 per share. The net asset value per share decreased by $0.16 during the quarter, primarily due to dividend payments exceeding earnings and net unrealized losses. The investment portfolio stood at $1.01 billion across 115 portfolio companies, with 98% of loans secured and 90% priced at floating rates.

Publication Date: Nov -21

📋 Highlights
  • Investment Activity:: $2.8 billion invested in 215+ companies with $1.8 billion in repayments, reflecting active portfolio management.
  • Earnings Performance:: GAAP net investment income of $0.32/share, realized income of $0.42/share, and core NII of $0.34/share.
  • Portfolio Valuation:: $1.01 billion portfolio at fair value (115 companies), 98% secured loans, 90% floating-rate pricing.
  • NAV Impact:: Net asset value per share fell $0.16 due to $0.08/share dividends and $0.08/share unrealized losses from 2 debt investments.
  • Future Outlook:: $5M equity realizations expected in Q4 2024 and Q1 2026, with $3.8M and $3.3M gains, respectively.

Portfolio Quality and Performance

The company's asset quality remained stable, with a slight improvement compared to plans, driven by a realized gain of $2.8 million on an equity position. Robert Ladd attributed potential significant repayments in Q4 to sales of businesses and refinancing, indicating a healthy pipeline of activity. The mix between new and add-on opportunities remained consistent, with follow-ons driven by delayed draw term loans.

Outlook and Guidance

Looking ahead to Q4, the company expects $5 million of equity realizations, with estimated gains of $3.8 million. The declared dividend for Q4 stands at $0.40. Analysts estimate revenue growth at 0.3% for next year, indicating a relatively stable outlook. The company's ability to maintain its dividend yield is crucial, given the current yield of 13.77%.

Valuation and Dividend Considerations

With a P/E Ratio of 11.77 and a Dividend Yield of 13.77%, the stock appears to be attractively valued, especially considering the steady income stream it offers. The EV/EBITDA ratio stands at 3797841.24, indicating a potentially high valuation relative to earnings. However, the dividend yield suggests that the market is pricing in a certain level of risk, making it essential to monitor the company's ability to maintain its dividend payments.

Growth Prospects and Capital Management

The company issued approximately 500,000 shares under its ATM program, raising $7.4 million, and is expecting to add approximately $50 million of capacity with the third SBA license. These capital management initiatives are crucial for driving growth and maintaining a healthy balance sheet. The company's ability to balance growth with dividend payments will be key to its attractiveness to income-focused investors.

3. NewsRoom

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Stellus Capital: Q3 Reveals That Distributions Continue To Exceed Earnings

Nov -23

Source: seekingalpha.com

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Stellus Capital Investment Corporation (SCM) Q3 2025 Earnings Call Transcript

Nov -12

Source: seekingalpha.com

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Stellus Capital (SCM) Q3 Earnings and Revenues Top Estimates

Nov -11

Source: zacks.com

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Stellus Capital Investment Corporation Reports Results for its Third Fiscal Quarter Ended September 30, 2025

Nov -10

Source: prnewswire.com

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Stellus Capital Investment Corporation Schedules Third Quarter 2025 Financial Results Conference Call

Nov -05

Source: prnewswire.com

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20 Ideal 'Safer' MoPay November Dividend Equities And 80 Funds To Buy

Nov -01

Source: seekingalpha.com

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Analysts Estimate Stellus Capital (SCM) to Report a Decline in Earnings: What to Look Out for

Oct -30

Source: zacks.com

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5 Lesser-Known Monthly Payers Yielding 9%+ You Shouldn't Ignore

Oct -22

Source: 247wallst.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (10.30%)

6. Segments

Investment and Related Activities

Expected Growth: 10.3%

Stellus Capital's diversified portfolio in middle-market companies drives growth through interest, dividends, and capital gains. Strong demand for private debt and equity investments, coupled with the company's expertise in originating and managing investments, fuels growth.

7. Detailed Products

Middle Market Direct Lending

Provides financing solutions to middle market companies, offering customized loan structures and flexible terms to meet the unique needs of each borrower.

Asset-Based Lending

Offers financing solutions secured by a company's assets, such as accounts receivable, inventory, or equipment, to provide liquidity and support business growth.

Unitranche Financing

Provides a single, integrated loan facility that combines the benefits of senior debt and subordinated debt, offering a simplified and efficient financing solution.

Second Lien Financing

Offers subordinated debt financing solutions to support companies with unique financing needs, such as growth capital, acquisitions, or recapitalizations.

Equity Co-Investments

Partners with private equity sponsors and companies to provide equity co-investments, supporting growth initiatives, acquisitions, and recapitalizations.

8. Stellus Capital Investment Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Stellus Capital Investment Corporation is medium, as there are alternative investment options available to investors, but the company's unique investment strategy and diversified portfolio mitigate this threat to some extent.

Bargaining Power Of Customers

The bargaining power of customers for Stellus Capital Investment Corporation is low, as the company's investment products are diversified and cater to a wide range of investors, reducing the dependence on individual customers.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Stellus Capital Investment Corporation is medium, as the company relies on a diverse range of suppliers for its investment operations, but has some flexibility to negotiate prices and terms.

Threat Of New Entrants

The threat of new entrants for Stellus Capital Investment Corporation is high, as the investment management industry is highly competitive and new entrants can easily enter the market with innovative products and services.

Intensity Of Rivalry

The intensity of rivalry for Stellus Capital Investment Corporation is high, as the investment management industry is highly competitive, and the company faces intense competition from established players and new entrants.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 99.68%
Debt Cost 5.07%
Equity Weight 0.32%
Equity Cost 9.67%
WACC 5.09%
Leverage 31122.18%

11. Quality Control: Stellus Capital Investment Corporation passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Stellus Capital

A-Score: 7.4/10

Value: 7.6

Growth: 6.8

Quality: 6.1

Yield: 10.0

Momentum: 4.0

Volatility: 9.7

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Diamond Hill Investment

A-Score: 6.5/10

Value: 6.8

Growth: 3.2

Quality: 8.4

Yield: 9.0

Momentum: 3.0

Volatility: 8.7

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WisdomTree

A-Score: 5.9/10

Value: 3.5

Growth: 6.3

Quality: 7.4

Yield: 3.0

Momentum: 8.0

Volatility: 7.3

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BlackRock TCP Capital

A-Score: 5.9/10

Value: 8.4

Growth: 3.3

Quality: 3.8

Yield: 10.0

Momentum: 2.0

Volatility: 8.0

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Virtus Investment Partners

A-Score: 5.9/10

Value: 5.6

Growth: 5.1

Quality: 7.2

Yield: 7.0

Momentum: 3.5

Volatility: 6.7

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PhenixFIN

A-Score: 5.7/10

Value: 7.3

Growth: 4.2

Quality: 7.0

Yield: 3.0

Momentum: 4.5

Volatility: 8.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

-10004343.78$

Current Price

12.61$

Potential

-79336688.26%

Expected Cash-Flows