THL Credit (TCRD) versus Safeguard Scientifics (SFE) Financial Analysis

THL Credit (NASDAQ: TCRD) and Safeguard Scientifics (NYSE:SFE) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their analyst recommendations, risk, earnings, dividends, institutional ownership, valuation and profitability.

Volatility & Risk

THL Credit has a beta of 1.04, meaning that its share price is 4% more volatile than the S&P 500. Comparatively, Safeguard Scientifics has a beta of 1.26, meaning that its share price is 26% more volatile than the S&P 500.

Dividends

THL Credit pays an annual dividend of $1.08 per share and has a dividend yield of 13.8%. Safeguard Scientifics does not pay a dividend. THL Credit pays out 89.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Valuation and Earnings

This table compares THL Credit and Safeguard Scientifics’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
THL Credit $78.77 million 3.24 -$7.90 million $1.21 6.46
Safeguard Scientifics N/A N/A -$88.57 million ($4.34) -2.95

THL Credit has higher revenue and earnings than Safeguard Scientifics. Safeguard Scientifics is trading at a lower price-to-earnings ratio than THL Credit, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares THL Credit and Safeguard Scientifics’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
THL Credit -9.01% 10.84% 5.92%
Safeguard Scientifics N/A -77.28% -38.47%

Insider and Institutional Ownership

45.0% of THL Credit shares are owned by institutional investors. Comparatively, 75.3% of Safeguard Scientifics shares are owned by institutional investors. 0.5% of THL Credit shares are owned by company insiders. Comparatively, 2.5% of Safeguard Scientifics shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Analyst Ratings

This is a summary of recent recommendations for THL Credit and Safeguard Scientifics, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
THL Credit 0 5 0 0 2.00
Safeguard Scientifics 0 1 1 0 2.50

THL Credit presently has a consensus target price of $10.00, suggesting a potential upside of 27.88%. Safeguard Scientifics has a consensus target price of $17.25, suggesting a potential upside of 34.77%. Given Safeguard Scientifics’ stronger consensus rating and higher possible upside, analysts clearly believe Safeguard Scientifics is more favorable than THL Credit.

Summary

Safeguard Scientifics beats THL Credit on 8 of the 15 factors compared between the two stocks.

THL Credit Company Profile

THL Credit, Inc. is an externally managed, non-diversified closed-end management investment company. The Company’s investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of lower middle market companies. The Company is a direct lender to lower middle-market companies and invests primarily in directly originated first lien senior secured loans, including unitranche investments. In certain instances, it also makes second lien secured loans and subordinated, or mezzanine, debt investments, which may include an associated equity component, such as warrants, preferred stock or similar securities, and direct equity investments. Its first lien senior secured loans may be structured as traditional first lien senior secured loans or as unitranche loans. The Company’s investment activities are managed by THL Credit Advisors LLC.

Safeguard Scientifics Company Profile

Safeguard Scientifics, Inc. no longer investing. It is a private equity and venture capital firm specializing in expansion financings, growth capital, management buyouts, recapitalizations, industry consolidations, corporate spinouts, growth stage, and early stage financings in Fintech sector. It initially invests in a Series A-C round and opportunistically in a seed round. The firm prefers to make investments in companies engaged in the technology, financial services, and healthcare sector. Within the technology sector, it invests in software as a service, adtech / digital media, Internet of Everything, enhanced security, predictive analytics, machine learning, artificial intelligence, enterprise software, technology enabled services, internet/new media, financial technology, cloud, mobile, social, big data, in memory, and selected business services with capital requirements of up to $25 million. Within healthcare sector, the firm invests in molecular and point-of-care diagnostics, medical devices, regenerative medicine, medical technology, digital health, healthcare technology, specialty pharmaceuticals, and selected healthcare services. It invests throughout the United States with a focus on Mid-Atlantic region, and Southeastern Canada. The firm primarily invests between $5 million and $25 million in growth equity financing and between $5 million and $10 million in early-stage financing. It typically invests in the capital structures including owner financed and bootstrapped companies, corporate division or business unit, and venture capital-backed seeking a growth partner. The firm prefers to be the largest shareholder in its portfolio companies, with ownership in the range of 20 percent to 50 percent. However, it may occasionally take a majority or smaller stake in its portfolio companies. It prefers to invest in companies having proprietary technology and intellectual property. The firm prefers to take a Board seat in its portfolio companies. The company was founded in 1953 as Lancaster Corporation and changed its name to Safeguard Scientifics, Inc. in 1981. Safeguard Scientifics, Inc. is based in Radnor, Pennsylvania with an additional office in Weston, Massachusetts.

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