Jim Roumell of Roumell Asset Management presented his in-depth investment thesis on Medley Capital (NYSE: MCC) at Best Ideas 2018.
Medley Capital is a Business Development Company (BDC), trading at a 35% discount to the most recently reported net asset value (as of September 30, 2017). MCC is comprised of roughly 68% first-lien notes, 16% second-lien notes, and 16% equity (as a result of debt-for-equity exchanges). MCC’s discount is unusually high, and this BDC pays a dividend of $0.16 per quarter (which it is currently earning), resulting in a yield in excess of 11%. Although access to underlying financial statements of the privately placed notes inside MCC’s portfolio is not possible, Jim believes aggressive stresstesting and default scenarios still leave MCC a bargain. Even assuming that Class 4 and Class 5 assets have a loss ratio of 100%, NAV is still $6.10 per share compared to a recent price of $5.30 per share. Importantly, BDC’s are restricted by the 1940 Investment Company Act and must maintain modest leverage of 2x, i.e., $1 of equity can be leveraged by $1 of debt. MCC’s capital structure is strong, with ample liquidity, including $108 million in cash. In the past several months there has been meaningful inside buying by MCC’s investment manager, Medley Management (MDLY), controlled by MCC CEO Brook Taube, at significantly higher prices than the recent price.
About the instructor:
Jim Roumell entered the securities industry in 1986. Before founding the firm in 1998, he was a Registered Principal at Raymond James Financial Services, Inc. Jim was selected to participate in, and won, two consecutive Wall Street Journal stock picking contests (in 2001 and 2002) before the contest was discontinued. Jim has been featured in such publications as Barron’s, Kiplinger’s, Value Investor Insight, Financial Planning Magazine, and The Washington Post. Jim is also listed and quoted in The Art of Value Investing: How the World’s Best Investor’s Beat the Market. He is a graduate of Wayne State University in Detroit, Michigan. He is married with two children (one living/working in Denver, CO and the other still at home) and lives in Chevy Chase, MD.
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