Buy - Price 8.56 on June 9
by Morgan Joseph

MVC reported slightly lower-than-expected [net asset value] per share of $16.84 in F2Q09. This compares to our $17.24 ... In Securities and Exchange Commission filings, MVC reported F2Q09 income from interest, dividends, and fees of $5.8 million, operating income of $2.1 million, net income of $1.7 million, a net realized and unrealized loss on investments of $9.5 million, and a net decrease in assets of $7.8 million. The company also reported realized and unrealized losses of 32 cents per diluted share versus our estimate of a 10-cent gain. We think multiples have bottomed out among portfolio companies, while revenue and Ebidta appear to be stabilizing...We are maintaining our Buy rating and target of 17. We believe MVC's portfolio remains relatively strong and that write-downs to portfolio companies should slow in coming quarters. Our price target is based on our estimated NAV per share of $16.88 at the end of FY2Q [the fiscal second quarter of] 2010. Market cap: $208 million.

Q: I see you also have the private-equity group MVC Capital. Isn't private equity having trouble accessing capital?

A: There is probably no other industry that is less loved. All those stocks are down for a couple of reasons. No. 1, a lot of them have fairly leveraged balance sheets and questionable investments. MVC Capital [MVC], however, has a pristine balance sheet, and most of its investments are holding up fairly well. Second, there is some question as to what the values of these private companies are. Clearly, valuation multiples are coming down, but MVC is very conservative in its valuations. It has a net asset value of $17 a share right now and is trading for 9. They have taken markdowns on a couple of portfolio companies. But we think most of the 40 or so companies they have in the portfolio are still doing OK. Their ability to access capital is not much of an issue since MVC is not dependent on a lot of debt.

0.56

"more obscure companies such as Compass Diversified (CODI), MVC Capital (MVC), Hercules Technology Growth Capital (HTGC), Ares Capital (ARCC) and American Capital Strategies (ACAP) may deserve a fresh look-see."

Publicly traded "hedge fund style" mezzanine debt holder. Trades at premium to NAV.

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Fool pick

Downgraded by Morgan Joseph from Buy to Hold