Ascendiant Capital Market analyst Edward Woo gives GSV Capital Corp (NASDAQ:GSVC) a Buy rating. They believe risk/reward favorable on strong Twitter Inc (NYSE:TWTR) IPO and valuation. They expect potential IPOs to drive share price up. Raising price target to $16. More details from the report below.
GSV Capital Q3 upside
Net investment income was $(0.16)/share, net change in unrealized appreciation and realized loss was $0.45/share, resulting in a change in net assets from operations per share (EPS) of $0.29 (compared with our estimate of $0.09). There were no consensus estimates or company guidance. We note that the company had delayed its earnings report (from November 7 to November 11) to finalize its Q3 accounting.
The company’s NAV per share increased to $13.16 from Q2’s $12.87.
Third quarter investments
During Q3, GSV Capital Corp (NASDAQ:GSVC) invested in 1 new portfolio company and 5 existing companies. As of September 2013, GSV had investments (Fair Value) of $253 million with a cost basis of $245 million. This compares with June 2013’s investments (Fair Value) of $244 million with a cost basis of $245 million. The company currently has ~$56 million in cash (~17% of total assets).
Investments on track
Management stated that most of its investments are proceeding well, and it is likely that over the next year several of them will complete IPOs (particularly as the IPO and stock market valuations are positive).
Positive market trends
Recent valuations (from IPO and M&A activities) for many high growth privately-held technology companies have been strong (+28% YTD returns for all IPOs).
Potential IPOs may be positive catalyst
We believe it is likely that several of GSV Capital Corp (NASDAQ:GSVC)’s portfolio companies may IPO soon. We note that Chegg is likely to IPO as soon as this week.
Twitter Inc (NYSE:TWTR) remains GSV’s largest investment at 18% of its total investments (~$45 million). We note that Twitter (TWTR – Not Rated) had its IPO in November, at $26/share as compared with GSV’s cost basis of ~$17/share. If Twitter’s current share price of ~$43/share holds through Q4, GSV is likely to report ~$2/share in gains on this investment in Q4. With a large positive return on this investment so far, we expect some of GSV Capital Corp (NASDAQ:GSVC)’s other IPOs to perform as well.
Positive risk versus reward
We acknowledge that GSV faces significant uncertainties with the timing and returns on its investments, but we also believe that its current valuation has already factored in many of them.
In September, GSV raised $69 million in convertible notes (5.25% due 2018, conversion price $16.26/share). We believe this should provide adequate investable capital for the near-term.
Current valuation attractive
Maintaining our BUY rating, but raising our 12-month price target to $16 from $13. This target is based on a 20% premium to its current NAV of ~$13. This is below our estimate of the current investments’ market value over the company’s calculated Fair Value and we believe more than appropriately balances out the risks with growth prospects of its current and future investments.