Eagle Point Credit Company Inc. is a closed ended fund launched and managed by Eagle Point Credit Management LLC. It invests in fixed income markets of the United States. The fund invests equity and junior debt tranches of collateralized loan obligations consisting primarily of below investment grade U.S. senior secured loans. Eagle Point Credit Company Inc. was formed on March 24, 2014 and is domiciled in the United States.

Eagle Point Credit Company Inc.

Financial Services

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends monthly, which may appeal to investors valuing a regular income stream. 

ECC reported revenue of USD 161mn in the last 12 months, up 31% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 50% from FY23 to USD 0.84. Market expects EPS to reach USD 1.14 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 14ppts over six months and grown 5ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 47.4% in the last 12 months, a decline from 57.2% in FY23. 

Historically, ECC has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 50.0%, down from 95.3% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 6.5% in the last 12 months, a decrease from 12.2% in FY23. The market analysts predict that RoA will be 12.6% in FY24, more robust than its peers in this period. 

Eagle Point Credit Company Inc. reported a return on equity (RoE) of 8.9% in the last 12 months, down from 15.9% in FY23. The market consensus projects an RoE of 16.0% in FY24, this time above its peers. 

In the last 12 months, the return on capital employed (RoCE) declined to 6.5%, below the peers. The consensus estimate for FY24 for RoCE is 18.4%, however, this time ahead of the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.0 in the past several years. This ratio implies a strong shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

ECC has above average trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to slow historical revenue growth, excessive margin volatility, and inadequate interest coverage. We note robust profitability and an favourable capital structure, among the positive credit factors. 

In highly turbulent market conditions, ECC is volatile. In other words, the stock will fall much more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be large. 

In normal market circumstances, ECC is moderately volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move slightly wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. 

Considering past and projected metrics, the stock is neither 'expensive' nor 'cheap' compared to its peers. In particular, the stock is reasonably priced on P/E, of fair value on EV/EBITDA, overvalued on P/FCF. 

Eagle Point Credit Company Inc.

$ 7.66

4

Eagle Point Credit Company Inc.

$ 7.66

4

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 7.66

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