BUY (GSBD, $19.79)
Solid Origination Platform, Sound Asset Quality, and Potential for Significant Portoflio Growth - Initiating With A BUY Rating And $23 Price Target.
October 12, 2015
Christopher R. Testa
Investment Conclusion. We are initiating coverage of Goldman Sachs BDC Inc. (GSBD) with a BUY rating and $23 price target. GSBD has a unique origination platform which, as it evolves, should lead to less reliance on sponsor originations going forward. Goldman has the ability to leverage its 500 private wealth management professionals across 13 cities in the United States to source non-sponsor, family owned originations that are generally off the radar of potential competitors. This also has the potential to insulate this part of originations from pricing pressure and should help maintain a steady NIM (net investment margin). GSBD has a shareholder friendly structure. Firstly, the company’s administrative expenses related to support by Goldman Sachs Asset Management (GSAM) as well as the costs of the salaries of the CEO, CFO, and teams are entirely paid for by GSAM. Also, the Board is entirely independent. GSBD has moderate leverage and significant spare capacity on its credit facility. This, combined with sound asset quality (no non-accruals since going public) further enhances our belief that the stock will continue to trade at or above NAV permitting accretive equity issuance when needed to grow the portfolio significantly. We also anticipate GSBD can increase its quarterly dividend by $0.02/share in 1Q16 to $0.47. Although Goldman does have a significant second lien position in its portfolio it is worth noting that the risk profile of this book, particularly attachment point leverage and cyclicality of the sectors lent to, is largely similar to the first lien investments in the portfolio. Our $23 price target implies an estimated 2016 P/NII of 11.0x, dividend yield of 7.8%, and P/NAV of 1.13x compared to the BDC sector averages of 8.5x, 11.5%, and 0.85x, respectively.
Source: S&P Capital IQ, National Securities Corporation Estimates
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