FS KKR Capital Corp II

FS KKR Capital Corp II (NYSE: FSKR) is a US-listed business development Company, with an investment objective of long-term capital appreciation and to generate current income.

Investment Highlights - FS KKR Capital Corp II – Avoid at USD 17.21

• Despite the improvement in financial performance in Q3 FY2020, the operating expenses continue to increase, which will have a negative impact on future performance.
• In the last one month, the Company delivered a negative return of ~5.18% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales and Price/Earnings multiple of the FS KKR Capital Corp II are currently higher as compared to the corresponding multiples of the Collective Investments industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 64 levels), which means the stock price could decline in the short term.

 Key Risks

• Increased competition could reduce the number of available investment opportunities.
• The Company is also exposed to various operational and financial risks with cybercrime, regulatory changes, and foreign exchange fluctuations.

Financial Highlights – Q3 & 9M FY2020 (30 September 2020) (released on 9 November 2020)

• In the Q3 and 9M for the financial year 2020, driven by higher interest income, the total investment income increased.
• The profitability of the period improved, reflecting higher investment income and realized and unrealized gains.
• The cash balance as on 30 September 2020 declined to $134 million (31 December 2019: $163 million).

Six Months Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown improvement in financial performance in the third quarter and nine months period of the financial year 2020. Both the top-line and the bottom-line performance improved, with higher profitability margins. The liquidity position for the period declined with the poor balance sheet. FSKR operations were impacted by the impact of Covid-19 as it resulted in a change in the investment behaviour of customers. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of USD 11.64 and USD 18.74, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on FS KKR Capital Corp II at the closing price of USD 17.21 (as on 8 January 2021), and with support from few catalysts needs to be evaluated at a later stage such as the strong relationship with third parties.

Transenterix Inc

Transenterix Inc (AMEX: TRXC) is a US-based medical device Company. The Company is engaged in developing and commercialising the SurgiBot System and ALF-X Surgical Robotic System.

Investment Highlights – Transenterix Inc – Avoid at USD 1.16

• In the Q3 and 9M period of the financial year 2020, the Company has generated significantly lower revenue, and profitability remained in the negative zone.
• In the last one year, the Company delivered a negative return of ~23.18% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales, Price/Earnings and Price/Earnings multiple of the Transenterix Inc are currently higher as compared to the corresponding multiples of the Healthcare Equipment & Supplies industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is in the overbought zone and is supporting downward movement (around 73 levels), which means the stock price could decline in the short term.

Key Risks

• Significant competition in the industry could affect the revenue and profitability of the Company.
• Failure in maintaining clinical quality could hamper the reputation of the Company. 

Financial Highlights – Q3 & 9M of FY2020 (30 September 2020) (released on 5 November 2020)

• In the third quarter and nine months period of the financial year 2020, due to lower product revenue, the total revenue declined.
• The Company managed to reduce the loss for the period, reflecting better control over expenses.
• As on 30 September 2020, the Company reported a higher cash balance of $19,964 thousand (31 December 2019: $9,598 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown an improvement in financial performance in the Q3 and 9M period of the financial year 2020. Despite the lower revenue, the bottom-line performance improved, while profitability remained in the negative zone. The Company has a higher cash balance with a well-positioned balance sheet. TRXC’s operations were not materially impacted by the covid-19 pandemic, while the market remained highly uncertain. The Company has incurred losses since inception and expects losses to further increase in future. The stock made a 52-week low and high of USD 0.28 and USD 2.62, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Transenterix Inc at the closing price of USD 1.16 (as on 8 January 2021) with support from few catalysts needs to be evaluated at a later stage such as better control over operating expenses.

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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