Shares of Logan Ridge Finance Corp. (LRFC) have gained 88.2% so far in 2021. LRFC, formerly called Capitala Finance Corp., is a business development company, which invests primarily in first lien loans. LRFC also invests in second lien loans and equity securities of performing, well-established middle-market companies.
LRFC’s recent Q2 performance was ahead of estimates on both top-line and bottom-line fronts. Let’s take a look at LRFC’s financials and understand what has changed in its key risk factors that investors should know.
In Q2, LRFC’s total investment income rose to $5 million, as compared to $4.9 million in Q1. It was, however, lower than the previous year’s figure of $7 million. The Q2 revenue remained ahead of analysts’ estimates by $544 thousand. Non-recurring dividends from portfolio companies offset lower interest and fee income in Q2.
Total expenses decreased to $5 million from $5.7 million in Q1. This decrease was on account of a reduction in interest and financing fees, management fees, and lower general and administrative expenses.
Earnings per share of $0.01 beat analysts’ estimates by $0.23. (See Logan Ridge Finance stock chart on TipRanks)
The CEO and President of LRFC, Ted Goldthorpe, said, “We are actively working to optimize the Company’s capital structure and to rotate out of non-income generating investments over time. Longer-term, our objective is to lower operational costs and increase scale, which we believe will enhance value for stockholders.”
At the end of June, LRFC had investments in 32 companies with an aggregate fair value of $228 million. Its debt investment portfolio, making up 67.7% of the fair value of the total portfolio, had a yield of about 9.9%.
On August 17, Ladenburg Thalmann & Co analyst Christopher Nolan upgraded LRFC to a Buy from a Hold with a price target of $32, implying 19.2% upside potential.
Now, let’s look at what’s changed in the company’s key risk factors.
According to the new Tipranks’ Risk Factors tool, LRFC’s main risk category is Finance & Corporate, which accounts for 71% of the total 96 risks identified. Since June, the company has added two key risk factors.
Recently, LRFC transitioned to a new investment advisor, Mount Logan Management LLC. Under the Legal & Regulatory risk category, LRFC acknowledges that there could be conflicts of interest associated with obligations that Mount Logan’s senior management and investment team have to other clients. LRFC relies on Mount Logan for assistance in identifying and executing investment opportunities and LRFC’s board to review and approve the co-investment transactions with Mount Logan.
Mount Logan and its affiliates may for other investment funds enter into other investment advisory relationships, or engage in other business activities. These activities could create a conflict of interest. Further, there could be certain investment opportunities that may satisfy investment criteria for LRFC as well as Mount Logan’s affiliates.
The second risk, under the Ability to Sell category, is that Mount Logan’s resources devoted to LRFC may be diverted, and LRFC may face heightened competition as individuals employed by Mount Logan are not prohibited from raising funds or managing other entities that make similar investments as LRFC.
The Finance & Corporate risk factor’s sector average is at 58%, compared to LRFC’s 71%.
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