OXLCZ - Oxford Lane Capital Is In A Slump With No Signs Of Recovery
2024-02-21 01:42:37 ET
Summary
- With an 18.86% forward dividend yield, Oxford Lane Capital may attract the interest of many income-focused investors. However, on a total shareholder return basis, I think it's poised to underperform:
- The company has been generating negative operating cash flows far in excess of its available cash and equivalent balances. This has forced it to raise funds, leading to a dilution of stakeholders.
- CLO warehouse investments are a leading indicator of future CLO issuances and investment activity. This has fallen sharply in recent quarters.
- OXLC's return profiles have shrunk as the fair value of its investments is underwater; 20% below cost value. Hence, NAVs have also shrunk.
- OXLC trades at a small premium to NAV. Given the weaker operational health, this reduces the margin of safety for buys. Technical analysis also indicates relative to the S&P 500.
Thesis
Oxford Lane Capital ( OXLC ) is a closed-ended fund that invests in collateralized loan obligations (CLOs). With an 18.86% forward dividend yield, it seems attractive to many income investors.
However, from a total shareholder return perspective, I am bearish on OXLC as I note the following:
- The company has negative operating cash flow and is diluting its stakeholders
- Leading indicators point to a slowdown in CLO investment activity
- Return profiles have shrunk and there is no meaningful recovery in investment value above cost
- OXLC trades at a premium to NAV, reducing the margin of safety for buys