FSK - FS KKR: I Am Buying The Q4 Drop Hand Over Fist

2024-03-08 06:15:48 ET

Summary

• FS KKR has seen a valuation drawdown after reporting NII results that met expectations.
• An increase in the BDC's non-accrual percentage has raised fears of a dividend cut, but the current dividend is well-supported by cash flow.
• FS KKR's distribution coverage ratio in FY 2023 was 1.11X which reflects a low dividend risk.
• The BDC's shares are now priced at an exaggerated discount to NAV and trade below the 1-year average P/NAV ratio which presents a buying opportunity.

FS KKR Capital ( FSK ) has seen significant selling pressure after the BDC reported net investment income results for the December quarter that matched adjusted NII consensus expectations. However, FS KKR’s earnings release, which was not bad at all, was overshadowed by an increase in the non-accrual percentage which unnecessarily caused irritations about the BDC's dividend. The current dividend is well-supported by cash flow, mostly interest income from the BDC’s loan portfolio, and I don’t see a dividend cut in FY 2024, unless the lending situation drastically worsens. The BDC’s shares are now priced at an exaggerated discount to net asset value, considering that the dividend is supported by NII. I am buying the drop hand over fist and I am prepared to buy more should the share price continue to slide!...

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