BMO Capital Markets maintains a ‘market perform’ rating on Apollo Investment Corp. (NASDAQ:AINV) as the company is seeing increasing opportunities in the aircraft leasing and energy sector.

Apollo Investment

BMO Capital Markets’ analysts reiterated their rating after attending recent investors meetings with the Apollo Investment Corp. (NASDAQ:AINV) management team.

Apollo Attractive Investment Opportunities

David J. Chiaverini and team at BMO Capital Markets feel the most attractive risk-adjusted investment opportunities for Apollo emanate from the aircraft leasing business. The analysts anticipate mid-teen returns with strong downside protection from the aircraft leasing business.

Apollo Investment Corp. (NASDAQ:AINV) is also set to witness solid opportunities in the energy sector with a focus on secured lending against North American producing upstream oil and gas reserves with similar mid-teen expected returns.

Specialist Origination Capabilities

BMO analysts feel the close-ended non-diversified management investment company continues to build out its specialist origination capabilities, with the newest niche in the metals and mining business, where Apollo is targeting 10 to 12 percent current returns, with warrants providing mid-teen potential.

BMO analysts note roughly 50 percent of deals originate from Apollo’s dedicated BDC professionals, while the remaining 50 percent are sourced through the rest of Apollo Global Management LLC (NYSE:APO).

The analysts observe Apollo’s portfolio repositioning commenced when Ted Goldthrope joined the company last year. The company is now focused on broadening its proprietary direct origination efforts by entering specialized niche investment business. Besides this, Apollo is positioning itself to enhance its floating-rate asset exposure in anticipation of higher interest rates.

BMO analysts note both initiatives have started yielding good results for Apollo.

Apollo Investment Corp. (NASDAQ:AINV) has also broadened its specialized lending business with its recent entry into metals and mining.

Maintains Average Portfolio Yield

David J. Chiaverini and team at BMO Capital Markets feel Apollo Investment Corp. (NASDAQ:AINV) has been able to maintain its average portfolio yield despite moving up in the capital structure of its borrowers. The analysts note the company has been able to maintain the yield by trading out of lower-yielding, more liquid investments in favor of higher-yielding, less liquid, and more complex investments.

The analysts also feel Apollo Investment Corp. (NASDAQ:AINV)’s portfolio growth should ramp up over the next 12 to 18 months, given the strong call protection embedded in its origination during the recent period.

With Apollo viewing its 30 percent non-qualified investment bucket as underutilized, BMO analysts feel once this potential is realized, Apollo’s overall portfolio yield would be enhanced.

With Apollo trading at 99 percent of book value and 10.3 times of BMO’s calendar 2014 estimate, BMO analysts set a $9 price target based on the company trading at 11 times BMO’s calendar 2014 NOI estimate.