Goldman Sachs Group (GS), with a yield of 2.1%, has joined our Growth & Income Portfolio with a ...
Hercules: A "Strong" Pick for Tech Investors
11/26/2019 5:00 am EST
Hercules Technology Growth Capital (HTGC), based out of Palo Alto, California, is a leading specialty finance company providing venture debt and equity to venture capital and private equity backed technology and life science companies, explains Bryan Perry, editor of Cash Machine.
The company was founded in 2003 and consists of a team of 13 managing directors and principals with more than 280 years of venture capital and specialty technology investing experience.
The strong rebound in the tech sector during the past two years has been a boon to HTGC’s financial performance. In its latest quarterly results that beat on the top and bottom line, HTGC posted net income of $69.2 million, up 31.6% compared with the third quarter of 2018.
Net Investment Income (NII) rose to a record $38.9 million, or $0.37 per share, an increase of 32.7% year over year. HTGC also pays out $1.28 annual dividend, providing a current yield of 9.20%. Structured as a business development company (BDC), Hercules Technology is required to pay out 90% of net income to shareholders, like other BDCs.
Its portfolio of loans stands at $2.3 billion with an effective yield before expenses of 13.4%. In the third quarter, HTGC originated a record $177 million in total commitments to new and existing clients targeting CPU technology, life sciences, the cloud, software as a service and renewable energy.
At the end of the quarter, more than 84.8% of the company’s debt investments were in a senior secured first lien position and more than 97.6% of the debt investment portfolio was priced at floating rate interest rates with a LIBOR floor. In my view, after the recent bond rally, long-term rates will rise benefiting HTGC’s interest income.
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