WhiteHorse Finance: An Appealing Play in Asset Management

04/22/2019 5:00 am EST

Focus: FINANCIALS

Neil Macneale III

Editor, 2 for 1 Stock Split

Neil Macneale, is well known for compiling an ongoing model portfolio based on companies that have announced stock splits. With a lack of recent splits, the editor of 2-for-1 is stepping beyond his normal routine and recommending a stock despite the fact that is it not planning to split its shares.

Thinking way outside the box, I’ll be buying a stock that will probably never split its shares but appeals to me on several other levels.

According to its website, WhiteHorse Finance, Inc. (WHF) is a business development company that originates and invests in loans to privately held, lower middle market companies across a broad range of industries.

Its investment activities are managed by its investment adviser, H.I.G. WhiteHorse Advisers, LLC, an affiliate of H.I.G. Capital, LLC ("H.I.G. Capital") a global alternative asset manager.

The company notes that it has  approximately $30 billion of capital under management across a number of funds focused on the small and mid-cap markets.”

WhiteHorse is barely big enough to qualify for the 2 for 1 portfolio, with a market cap of just $286 million and an average trading volume of only a bit over 50,000 shares a day. However, the numbers are super and management seems to know what they’re doing.

WHF has been paying a steady quarterly dividend of over 10% for the last six years and that’s with a payout ratio of only 50%.

If you are a Benjamin Graham fan you will love this stock. WHF is selling at about 10% under book value. Volatility is significantly lower than the market and the PE ratio is at 5 and hasn’t been over 9 for more than five years.

My first instinct was “Whoa, there’s got to be something wrong here.” Digging in a bit, I could find no negative press or bloggers waving red flags.

Insiders have been buying shares over the last six months or so. This looks like a sleeper waiting for the market to wake up but, even if that never happens, the dividend will make the waiting very satisfying.

I will be using a limit order to purchase our position in WhiteHorse and, if I see a spike in volatility, the buy may be stretched out over several days. We’re going to own this company for at least 2 1/2 years, so there’s no need to rush the purchase.

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