Analyzing Alcentra Capital (ABDC) and Horizon Technology Finance (NASDAQ:HRZN)

Horizon Technology Finance (NASDAQ: HRZN) and Alcentra Capital (NASDAQ:ABDC) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their dividends, earnings, institutional ownership, risk, profitability, valuation and analyst recommendations.

Insider & Institutional Ownership

17.3% of Horizon Technology Finance shares are held by institutional investors. Comparatively, 32.1% of Alcentra Capital shares are held by institutional investors. 1.3% of Horizon Technology Finance shares are held by company insiders. Comparatively, 5.0% of Alcentra Capital shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Earnings and Valuation

This table compares Horizon Technology Finance and Alcentra Capital’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Horizon Technology Finance $32.98 million 3.84 -$4.91 million $0.57 19.30
Alcentra Capital $40.60 million 2.92 $8.78 million $0.48 17.33

Alcentra Capital has higher revenue and earnings than Horizon Technology Finance. Alcentra Capital is trading at a lower price-to-earnings ratio than Horizon Technology Finance, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Horizon Technology Finance and Alcentra Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Horizon Technology Finance 24.46% 9.96% 6.31%
Alcentra Capital -2.25% 11.32% 7.03%

Analyst Ratings

This is a breakdown of current recommendations for Horizon Technology Finance and Alcentra Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Horizon Technology Finance 1 3 1 0 2.00
Alcentra Capital 2 1 1 0 1.75

Horizon Technology Finance currently has a consensus price target of $10.75, suggesting a potential downside of 2.27%. Alcentra Capital has a consensus price target of $12.83, suggesting a potential upside of 54.25%. Given Alcentra Capital’s higher possible upside, analysts clearly believe Alcentra Capital is more favorable than Horizon Technology Finance.

Dividends

Horizon Technology Finance pays an annual dividend of $1.20 per share and has a dividend yield of 10.9%. Alcentra Capital pays an annual dividend of $1.36 per share and has a dividend yield of 16.3%. Horizon Technology Finance pays out 210.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Alcentra Capital pays out 283.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Risk and Volatility

Horizon Technology Finance has a beta of 0.84, meaning that its share price is 16% less volatile than the S&P 500. Comparatively, Alcentra Capital has a beta of 0.62, meaning that its share price is 38% less volatile than the S&P 500.

Summary

Alcentra Capital beats Horizon Technology Finance on 8 of the 15 factors compared between the two stocks.

About Horizon Technology Finance

Horizon Technology Finance Corporation is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to maximize investment portfolio’s total return by generating current income from the debt investments it makes and capital appreciation from the warrants it receives when making such debt investments. It lends to and invests in development-stage companies in the technology, life science, healthcare information and services and cleantech industries (collectively Target Industries). It is focused on making secured debt investments (Venture Loans) to venture capital backed companies in its Target Industries. As of December 31, 2016, its debt investment portfolio consisted of 44 debt investments. As of December 31, 2016, the Company held warrants to purchase stock, predominantly preferred stock, in 78 portfolio companies, equity positions in five portfolio companies and success fee arrangements in 11 portfolio companies.

About Alcentra Capital

Alcentra Capital Corporation is a specialty finance company that operates as a non-diversified, closed-end management investment company. The Company operates as a business development company and a regulated investment company. It provides customized debt and equity financing solutions to lower middle-market companies, which are companies having annual earnings, before interest, taxes, depreciation and amortization of between $5 million and $15 million, and/or revenues of between $10 million and $100 million. Its investments range in size from $5 million to $15 million. Its investment objective is to generate both current income and capital appreciation primarily by making direct investments in lower middle-market companies in the form of senior debt, unitranche, second lien, subordinated debt and, to a lesser extent, senior debt and minority equity investments. Its investment focus is to make loans to, and selected equity investments in, privately-held lower-middle-market companies.

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