Ares Capital: Rising Rates Make Up For Activity Slowdown (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• The BDC sector is not in the most upbeat shape, but Ares Capital is well positioned.
• Investment activity is slowing down as evidenced by falling gross funding and gross commitment data along with management commentary indicating a dearth of investment opportunities.
• But rising rates are a more powerful tailwind for Ares Capital's floating-rate-dominated investment portfolio. Further rate hikes are likely to provide further propulsion, increasing investment yields.
• The quality of the portfolio is steadily improving as the mix and incidence of the highest investment grade companies increase. An increasing weighted average EBITDA also signals portfolio resiliency.
• I anticipate increasing net investment income to lead to a jump in NAVs in Q2 FY23, driving upsides in the valuations and stock prices.

Read the full article here.