PNNT - PennantPark Investment: Still Too Speculative To Go Long
2024-06-02 21:18:00 ET
Summary
- PennantPark Investment Corporation has outperformed the BDC market despite my concerns about its risk exposure and dividend coverage.
- Even though PNNT has surged higher, the Q2 earnings report showed a decline in cash generation and a dividend increase that may not be sustainable.
- In this article, I explain the reasons why the market has sent PNNT higher and why I am still reluctant to go long.
I have assumed a conservative stance on PennantPark Investment Corporation ( PNNT ) since early January this year, when I published my first article on this BDC. The key reasons for my skepticism against PNNT were the following:
- Excessive exposure to non-first lien investments, which renders the BDC riskier than the average peer in this space.
- Thin margin of safety when it comes to the coverage of a base dividend.
- High concentration in equity-type instruments, which makes the dividend coverage less predictable as the distributions from the equity investments are inherently more volatile than from, say, first lien investments.