Our Take on SuRo Capital's Earnings and New Dividend Announcement
We expect OpenAI’s updated valuation to drive a step up in the BDC’s net asset value per share.
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Tuesday night, SuRo Capital (SSSS) reported its complete September-quarter results and announced its next dividend payment of $0.25 per share slated for early December. There were few surprises in the report given the initial portfolio update the company shared in early October.
As telegraphed, the net asset value per share for its investment portfolio came in at $9.23, almost the midpoint of $9.00-$9.50 range offered in the October update. As we discussed at the time that September-quarter figure was determined using OpenAI’s $300 billion valuation from earlier this year, not the more recent one of $500 billion. When SuRo reports its December quarter in late January-early February, that is when that updated valuation will be baked into its NAV per share figure. It will also incorporate movements in its other portfolio holdings. Recognizing that upcoming adjustment, we lifted our SSSS price target to $12 several weeks ago, and for the time being it will remain there.
As SuRo monetizes more of its investment portfolio, we’ll revisit our NAV per share expectations and our price target. By monetization we mean the company’s holdings in existing public companies such as CoreWeave (CRWV) and GrabAGun (PEW) as well as IPOs for other holdings. After the September quarter closed, SuRo took another step in monetizing its CRWV position, saying that as of November 4, it still had 71.8% of its investment in the CW Opportunity 2 LP, down from 83.4% on September 30.
As SuRo continues to monetize those positions and others in its portfolio that go public in the coming quarters, we should, in keeping with the company’s BDC status, see it fuel further dividend payments. Some of the proceeds and cash on hand are likely be used for other purposes. One of those is investments in new companies or building its positions in existing ones, something that is par for the course with the Pro Portfolio.
Another purpose is buying back either SuRo’s share of its notes or its shares. Alongside the September-quarter earnings report and dividend declaration, the company’s board of directors approved an extension of $40 million for the existing discretionary notes program and also extended its October 2024 $64.3 million share-repurchase program to October 31, 2026. Under that program SuRo has already repurchased over 6 million shares or $39.3 million, leaving $25 million remaining.
We suspect management will be strategic with these programs, matching portfolio gains with repurchase activity while balancing dividend payments. The degree to which those programs are enacted, they should reduce overall interest expense and the share count, both of which could assist in the company’s dividend stream down the road.
At the end of September, SuRo had $54.5 million in cash on hand, and that figure should be incrementally higher given the quarter-to-date exit of CRWV shares that totaled a net realized gain of $4.3 million. As we see it, that combined figure along with any additional monetization of the remaining CoreWeave position suggests a special dividend true up payment before year-end is rather likely.
Near-term given the renewed market concerns over the AI trade, we could see SSSS shares dragged lower. But in our view, that would only increase the risk-to-reward tradeoff, especially following OpenAI’s recent reorganization that has it on the IPO path. And with that in mind, remember OpenAI is one of SuRo’s largest portfolio holdings even before it updates its fair value to account for OpenAI’s upsized valuation.
At the time of publication, TheStreet Pro Portfolio was long SSSS.
