Financial Analysis: OFS Capital (NASDAQ:OFS) vs. Barings Bdc (NYSE:BBDC)

Barings Bdc (NYSE:BBDC) and OFS Capital (NASDAQ:OFS) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their profitability, valuation, dividends, institutional ownership, earnings, risk and analyst recommendations.

Institutional and Insider Ownership

44.1% of Barings Bdc shares are owned by institutional investors. Comparatively, 10.8% of OFS Capital shares are owned by institutional investors. 0.5% of Barings Bdc shares are owned by company insiders. Comparatively, 0.5% of OFS Capital shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Volatility and Risk

Barings Bdc has a beta of 0.6, indicating that its share price is 40% less volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.85, indicating that its share price is 15% less volatile than the S&P 500.

Profitability

This table compares Barings Bdc and OFS Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Barings Bdc	36.01%	10.11%	4.30%
OFS Capital	7.52%	8.95%	3.41%

Valuation & Earnings

This table compares Barings Bdc and OFS Capital”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Barings Bdc	$286.17 million	3.29	$110.29 million	$0.97	9.23
OFS Capital	$8.01 million	7.46	$28.44 million	$0.24	18.58

Barings Bdc has higher revenue and earnings than OFS Capital. Barings Bdc is trading at a lower price-to-earnings ratio than OFS Capital, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of current recommendations and price targets for Barings Bdc and OFS Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Barings Bdc	0	2	2	0	2.50
OFS Capital	1	1	0	0	1.50

Barings Bdc presently has a consensus target price of $9.67, suggesting a potential upside of 8.01%. OFS Capital has a consensus target price of $7.00, suggesting a potential upside of 56.95%. Given OFS Capital’s higher probable upside, analysts plainly believe OFS Capital is more favorable than Barings Bdc.

Dividends

Barings Bdc pays an annual dividend of $1.04 per share and has a dividend yield of 11.6%. OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 15.2%. Barings Bdc pays out 107.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital pays out 283.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Barings Bdc has increased its dividend for 3 consecutive years and OFS Capital has increased its dividend for 3 consecutive years.

Summary

Barings Bdc beats OFS Capital on 11 of the 16 factors compared between the two stocks.

About Barings Bdc

Barings BDC, Inc. is a publicly traded, externally managed investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. It seeks to invest primarily in senior secured loans, first lien debt, unitranche, second lien debt, subordinated debt, equity co-investments and senior secured private debt investments in private middle-market companies that operate across a wide range of industries. It specializes in mezzanine, leveraged buyouts, management buyouts, ESOPs, change of control transactions, acquisition financings, growth financing, and recapitalizations in lower middle market, mature, and later stage companies. It invests in manufacturing and distribution; business services and technology; transportation and logistics; consumer product and services. It invests in United States. It invests in companies with EBITDA of $10 million to $75 million, typically in private equity sponsor backed.

About OFS Capital

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.