Last week, I published my first SA article on Prospect Capital (NASDAQ:PSEC), several comments related to how Main Street Capital (NYSE:MAIN) was the right and better choice compared to PSEC. Whilst MAIN may be the gold-standard of BDCs, at the current relative share price, I see more downside in MAIN. Below, we conduct a sum of the parts valuation and see MAIN shares to be fairly valued between USD $26 and $29.5 per share in the current market conditions. This gives a very poor total return prospect.
MAIN assets can be closely replicated by other securities trading at par value, but the benefit of accessing mid market loan assets does justify a 20% equity premium.
We see two main questions when valuing MAIN (or any BDC): What is the value on the assets, and should I ascribe a premium for the organisation that gives access to these assets? We assume that the assets are fairly valued, and to assess if we should pay a premium, we will analyse how we can best replicate MAIN assets with listed public securities trading at par and then if the difference between such replicated assets and MAIN is worth a premium.
