Stellus Capital’s Earnings Call Highlights Growth Amid Challenges

Stellus Capital Investment ((SCM)) has held its Q2 earnings call. Read on for the main highlights of the call.

Stellus Capital Investment’s recent earnings call conveyed a cautiously optimistic sentiment, highlighting stable asset quality and increased investment activity. However, challenges such as a decrease in net asset value per share, existing nonaccrual loans, and earnings not covering dividends were noted. Positive indicators for future growth include the progression towards obtaining an SBIC III license and potential equity realizations.

Stable Asset Quality

The earnings call revealed that 84% of Stellus Capital’s portfolio is rated 1 or 2, indicating performance that is on or ahead of plan. Importantly, no new loans were added to the nonaccrual list this quarter, underscoring the company’s stable asset quality.

Increase in Investment Activity

Stellus Capital has experienced a significant uptick in investment activity, with $26 million in new fundings since June 30, 2025. The company aims to maintain a portfolio size of approximately $1 billion, reflecting its commitment to robust investment growth.

Dividend Declaration

The company declared a dividend of $0.40 per share for the third quarter, payable monthly. Stellus Capital expects to maintain this dividend rate in the fourth quarter, demonstrating its commitment to returning value to shareholders.

Potential Equity Realizations

Stellus Capital anticipates $12 million in equity realization proceeds and approximately $10 million in gains over the next five months. These potential realizations could provide a significant boost to the company’s financial performance.

SBIC III License Progress

A key highlight from the call was the receipt of a greenlight letter from the Small Business Administration for Stellus Capital SBIC III. This is an important step towards obtaining the license, which could enhance the company’s investment capabilities.

Decrease in Net Asset Value Per Share

The net asset value per share decreased by $0.04 during the quarter, primarily due to a reduction in spillover income. This decline poses a challenge to the company’s financial metrics.

Nonaccrual Loans

Currently, loans to five portfolio companies are on nonaccrual, comprising 6.8% of the total cost and 3.8% of the fair value of the total loan portfolio. This remains a concern for the company.

Earnings Per Share Not Covering Dividends

Despite having a spillover of $45 million this year, Stellus Capital’s earnings per share have not been covering the dividend for the last few quarters, highlighting a financial challenge that needs addressing.

Forward-Looking Guidance

Looking ahead, Stellus Capital anticipates continued robust investment activity, with $26 million of new fundings since June 30, 2025. The company projects equity realizations of $12 million in proceeds and approximately $10 million in gains over the next five months. The dividend for the third quarter was declared at $0.40 per share, with expectations to maintain this rate in the fourth quarter, subject to Board approval.

In summary, Stellus Capital’s earnings call reflected a cautiously optimistic outlook, with stable asset quality and increased investment activity as key positives. However, challenges such as a decrease in net asset value per share and earnings not covering dividends remain. The company’s progress towards obtaining an SBIC III license and potential equity realizations are promising indicators for future growth.