We're Initiating a Position in This CoreWeave, OpenAI, ServiceTitan Play
Total return will be the name of the game with this business development company name.
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| Symbol | Transaction Type | # Shares Traded | Recent Price $ | Shares Owned After Trade | % Portfolio |
|---|---|---|---|---|---|
SSSS | Buy | 7,500 | 6.65 | 7,500 | 1.0 |
After you receive this Alert, TheStreet Pro Portfolio will buy 7,500 shares of SuRo Capital SSSS at or near $6.65. This is a new position, which, after the trade, will account for 1.0% of the Pro Portfolio’s assets.
We are initiating a position in the shares of SuRo Capital with a price target of $8.25, which equates to a multiple of 1x the company’s expected net asset value per share for the current quarter. In addition to the upside we see, there is another aspect to our rationale for calling the shares up to the Pro Portfolio.
Because SuRo is a business development company (BDC) and its corresponding dividends are based on net long-term realized gains, upcoming IPO lockup expirations should trigger dividend payments to shareholders. The lockup period for ServiceTitan (TTAN) shares, about 6.3% of SuRo's investment portfolio exiting the March quarter, expires on June 10, while the one for CoreWeave CRWV, 9.1% of SuRo’s portfolio exiting March, expires on September 24.
Closing out the March quarter, TTAN shares were trading at $95.11 compared to the $113.12 they closed at Wednesday night. CoreWeave shares, which have been on a tear lately, closed Wednesday night at $150.48, up from $37.08 exiting the March quarter and $102.74 when we placed SSSS shares into the Bullpen on May 23.
Based on those movements alone, and not accounting for meaningful moves in the company’s other holdings, we should see a dramatic sequential improvement in SuRo’s net asset value per share. The combined movements in CRWV and TTAN shares and the upcoming TTAN lock-up expiration are part of the driving factors behind starting a position in SSSS shares today.
Focused on Total Return, Not Just Stock Appreciation
What’s important to factor into our thinking is that SuRo’s strategy isn’t to hold public company investments, but rather monetize them following the lock-up expiration. Sometimes this can be immediate, and sometimes it can be in stages, but when that monetization occurs it triggers dividend payments. And because a BDC has to pay out at least 90% of its taxable income through dividends to shareholders, there is the possibility of a special dividend to hit that qualifying threshold late in the year.
As we think about this, it means that we should focus on total return with SSSS, which is defined as capital gains in the shares plus dividends received while owning them. What this means is even if we see SSSS shares trade sideways or move lower, depending on the size of the dividend payments in the coming quarters, the position’s total return could still be sizable for the Pro Portfolio.
Another Reason to Monitor IPO activity
Scanning SuRo’s other investments, which include an investment in OpenAI through the ARK Type One Deep Ventures Fund, wearable company Whoop, design platform Canva, and productivity and learning platform Learneo, other monetization opportunities down the line could drive dividend payments and SuRo’s net asset value. This will require us to keep a close watch on the IPO and M&A markets, something we’re doing anyway given our positions in Morgan Stanley MS and Bank of America BAC.
Why a Two Rating?
Because SSSS shares have had a strong run of late, thanks largely to the management team’s visibility on its CoreWeave investment, we’re starting small with this new position and will look to carefully build the position size. With the share price and the potential for wide swings we’ve seen in the past, especially in a volatile market, we are going to set a very wide panic point for the shares at $5, and should we see the shares pull back near $5.30-$5.60 we would be buying more aggressively. With that in mind, we’ll look to build on this opening salvo on pullbacks or as shares of CRWV and TTAN move higher.
Given the upcoming catalysts on the horizon, any time at such levels around $5.50, should that happen, is likely to be short-lived. Catalysts include the expiration of the TTAN lock-up period, SuRo sharing a preliminary look at its June-quarter investment portfolio in early July, reporting its June-quarter results, and a TTAN-driven return of its dividend. Additional potential catalysts include announcements from key SuRo portfolio holdings, especially CoreWeave.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)
At the time of publication, TheStreet Pro Portoflio was long MS and BAC.
