Published Sat, 21 Nov 2020 04:59:54 -0500 on Seeking Alpha
Seeking AlphaDividend Ideas | Financials PennantPark Investment: 11.3% Yield With Large Discount To NAVNov. 21, 2020 4:59 AM ET|| About: PennantPark Investment (PNNT)by: Gen AlphaGen Alpha Long Only, Value, Growth, Growth At Reasonable PriceSummaryPennantPark Investment has seen an improvement to its adjusted NAV and a better portfolio yield on a sequential basis.
Leverage ratio has also improved, and I'm encouraged by management's decision to continue to waive its incentive fee through the end of 2020.
I find the dividend yield to be safe and attractive and see upside potential for the share price.
It's been three months since I last visited PennantPark (Nasdaq: PNNT), and at the time, I had a Buy rating on the stock. It appears that my bullish thesis has been validated. As seen below, the stock has returned 33% (including dividends) since that article was published. Despite the recent run-up in share price, I still see the stock as being undervalued. In this article, I evaluate what makes PennantPark an attractive investment at the current valuation, so let's get started.
A Look Into PennantPark
PennantPark Investment is an externally managed Business Development Company that focuses on lending to companies in the middle-market space. Like its peer, PennantPark Floating Rate Capital (Nasdaq: PFLT), it is also managed by PennantPark Investment Advisors, LLC. It was founded in 2007 and has deployed over $11 billion in capital since inception. As of September 30th, its loan portfolio is worth $1.1 billion and is spread across 80 different companies in a variety of industries.
Compared to PFLT, PNNT has a riskier portfolio structure, with a higher proportion of investments that are classified as second-lien secured debt and under. As seen below, just 41% of PNNT's loan portfolio is first-lien secured debt and 61% of the portfolio is secured debt (first-lien plus second-lien). This is riskier compared to PFLT, which holds 89% of its loan... Read more