Following Apollo Investment Corp. (NASDAQ:AINV) beating consensus estimates in 4Q13, BMO Capital Markets increased its FY2014 basic NOI estimate to $0.88 from $0.85.

David J. Chiaverini and Richard Fellinger of BMO anticipate Apollo Investment Corp. (NASDAQ:AINV)’s leverage to edge modestly higher as the company seeks to invest in more secured, floating rate investments in the coming quarters.

Apollo Investment’s strong quarterly results

The BMO analysts note Apollo Investment Corp. (NASDAQ:AINV) logged calendar 4Q13 basic NOI of $0.22 per share, beating BMO’s estimate of $0.19 and consensus of $0.21. The analysts note the increase was largely due to higher-than-expected dividend income and a better-than expected net interest margin each adding a penny to results.

As can be deduced from the following income statement of Apollo, the close-ended non-diversified management investment company logged basic EPS of $0.47 for the 4Q13, while it posted diluted NOI per share of $0.21.

Apollo Investment income statement

The BMO analysts estimate Apollo Investment Corp. (NASDAQ:AINV) to clock basic EPS of $1.09 and $0.80 for the fiscal 2014 and 2015.

Pristine credit quality, solid book value

The BMO analysts note an NOI beat, pristine credit quality, and solid book value growth make for a good quarter for Apollo.

The analysts point out Apollo’s credit quality remains pristine with no non-accrual loans. They also anticipate continued favorable credit performance would be posted by Apollo considering the sanguine economic backdrop.

Apollo’s decent book value growth

As can be seen from the following table,  Apollo Investment Corp. (NASDAQ:AINV)’s book value increased 3% sequentially to $8.57 per share during the 4Q13. The BMO analysts note the book value increase was ahead of their 1% to 2% expectation. Incidentally this was the second consecutive quarter of decent book value growth for Apollo.

Apollo Investment's balance sheet

As can be deduced from the above table,  Apollo Investment Corp. (NASDAQ:AINV)’s net portfolio too grew by 5% sequentially. The analysts point out that this growth too was ahead of their +1% expectation, thanks to new investment originations totaling $630 million and portfolio appreciation of $68 million being partially offset by repayments / sales of $544 million. The BMO analysts anticipate net portfolio growth of $50 million per quarter through 2014.

Apollo’s improved leverage

As can be observed from the following financial ratios table of  Apollo Investment Corp. (NASDAQ:AINV), its net leverage increased to 0.65:1 from 0.62:1 sequentially, slightly above the peer average of 0.55:1. The BMO analysts anticipate Apollo’s leverage to edge modestly higher as the company seeks to invest in more secured, floating rate investments in upcoming quarters.

Apollo's financial ratios

Considering good performance in the quarter, the BMO analysts have increased their FY 2014 basic NOI estimate of Apollo to $0.88 from $0.85. They point out that Apollo is trading at 96% of book value and 10.3x the analysts’ calendar 2014 estimate compared with peers at 104% and 10.5x respectively.

David J. Chiaverini and Richard Fellinger of BMO pegged Apollo’s target price at $9 based on Apollo Investment Corp. (NASDAQ:AINV) trading at 11x of the analysts’’ 2014 NOI estimate.