Capital Southwest's Management Boasts An 'Impressive Track Record,' JMP Says

Capital Southwest Corporation CSWC, a business development company that offers flexible financing solutions to middle market businesses, is backed by a management team with an "impressive track record." This bodes well for the stock's outlook, according to JMP.

The Analyst

JMP Securities' Christopher York initiated coverage of Capital Southwest with a Market Outperform rating and $20 price target.

The Thesis

Over the years, Capital Southwest's management team oversaw multiple favorable initiatives to support shareholder growth, York said in a note. The 2015 spin-off of a sizable and non-yielding equity investment through CSW Industrials, coupled with a new credit-focused investment strategy has resulted in:

• A book value per share growth from $17.22 to $19.08;
• Core dividend per share growth from zero to 29 cents; and
• A new supplemental quarterly dividend of 10 cents per share from realized gains that do not need to be shared through an incentive fee.

Shares of Capital Southwest are higher by 55 percent since the end of 2015, which is more than double the 25.6 percent average for its BDC peers that trade at a market cap below $500 million, the analyst said.

Despite superior returns, there's still room for more upside given the company's un-leveraged balance sheet at 0.3 times and expectations for management to increase hold sizes and implement internally-managed initiatives to become more efficient and decrease the expense ratio which should flow to the bottom line.

Price Action

Shares of Capital Southwest were trading around $18.31 Tuesday afternoon.

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