Stock Price History
TriplePoint Venture Growth (NYSE:TPVG) is trading above Net Asset Value because the earnings are growing rapidly. It has unrealized gains on warrants, and it is increasing leverage. It is rare that a closed-end investment fine stock is trading at a premium, which TriplePoint began to do last year. It is a buy.
The table below illustrates the long-term favorable performance of this fund. The net investment income has increased every year. The results for the first half of 2019 are outstanding. The number of shares increased by forty percent. Asset value, per share, increased by fifty-three percent. These results are probably higher than they will achieve in the second half.
The warrants are from stocks that have gone public. These warrants account for the $14.9 million of unrecognized gains, which is an increase of more than 17-fold, compared to last year. The unrecognized gain increased further in the third quarter from a transaction that occurred just after the quarter closed.
TriplePoint Capital established TriplePoint Venture Growth fund in 2014. TriplePoint Capital is the fund management and the “advisor”. It has a high market share in a very narrow niche from which it derives its business. They provide the last tranche of debt before going public. The fund is located on Sand Hill Road in Silicon Valley, famous as the location of venture capital firms. They have an excellent deal flow from respected venture capitalists.
Total assets of the fund were $525 million at the end of the second quarter 2019 with investments of $496 million. These numbers exclude unrealized gains of $14.9 million. The fees of the Advisor (TriplePoint Capital) in the first half of 2019 were $8.8 million. That includes a management fee of 1.75% of the assets per year, which totals $3.8 million, and an incentive fee on gain over 8%, which totals $5 million.
The fund has a debt of $160 million. The debt is rated at investment grade (BBB). Last year, the fund earned 17.1% on debt investments. However, much of this return came from early repayment fees when the venture companies went public. On average, one or two venture clients go public in a quarter. The fund has agreements to expand its debt so it can increase leverage. It has BBB rated bonds that trade at above redemption value.
Last year, it earned 17.1% on debt. However, much of this return came from early repayment fees when the venture companies went public. On average, one or two startup companies will go public a quarter. Fund management stated that they could not predict when the venture companies will go public. Management offers no guidance on the earnings for the last half of 2019. Management left open how many shares will be issued and when the warrants will be cashed to provide additional earnings. Obviously, management has a broad discretion on reporting earnings.
One way to estimate the dividend would be to estimate the increase in the fund’s net assets. In the first half of 2019, increasing net assets were $1.41 with 80% of that or $1.12, to be conservative, which produces a full year increase in net assets of $2.53.
Last year, the fund paid an extra dividend of 10 cents for a total 2018 payout of $1.54. If they pay 25 to 50 cents extra, the 2019 dividend would be $1.69 to $1.94. That would be a full year payout of 10 to 12 percent with the expectation of a better 2020. This would keep the stock price flat to slightly higher. This is a good income with the expectation of a limited stock increase and a continuation of increasing income.
TriplePoint is unique, and its assets are spread over a diverse group of industries minimizing the risk. It has a high market share of deals from venture capitalists that fund these companies. TriplePoint has the advantage of a high market share of a concentrated customer, while the risk is lowered by being spread over so many industries.
The fund’s risk is further lowered by lending to established ventures that have gone through the early round of venture capital investment. The ventures are performing well when TriplePoint makes the loans. Only one-half percent of the loans are in a loss situation.
Source: TriplePoint Venture Growth
TriplePoint Venture Growth has a niche of loaning money to new ventures that appear riskier than they really are. The advisor’s fees are excessive, but it is still a good income investment with future growth potential. It is a buy.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.