National Securities assumed coverage on shares of XAI OCTAGON FR/COM (NYSE:XFLT) in a research note issued to investors on Monday. The brokerage issued a buy rating and a $13.00 price target on the stock.
“ We are initiating coverage on XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT) with a BUY rating and $13 price target. The company is sub-advised by Octagon Credit, a leading CLO and credit investor in the US. Despite the small size of XFLT, it is worth noting that Octagon Credit has just over $20 billion of AUM and is thus able to leverage its extensive knowledge of credit markets for the benefit of XFLT shareholders. Octagon has been a top five CLO issuer since the financial crisis.
The company also is utilizing a mixed strategy of credit. The fund will opportunistically invest in corporate bonds, first lien leveraged loans, second lien leveraged loans, CLO debt, and CLO equity. The ability to toggle between these assets at times when credit spreads may vary significantly is a major advantage for XFLT, as we see it. The company will likely be able to invest more in first and second lien loans and less in CLO equity during periods of market dislocation, for example, which would enable XFLT to manage its ROE but reduce the underlying volatility of the book, thus enhancing its Sharpe ratio. To the extent credit spreads widen for technical reasons and not due to increased defaults, the company could also choose to purchase more CLO equity.
The company also has a term trust structure that ends 12/31/29. The Board is able to tender for 100% of XFLT shares at NAV (measured twelve months prior to the end of the term). This gives the company significant incentive to maintain NAV/share as we doubt the Board will be happy purchasing shares at NAV if they are trading at a material discount to NAV.
We continue to view CLO equity very favorably. As a reminder, CLO equity has the optionality to benefit from environments of spreads tightening or widening. With a five-year revolving pool of assets versus liabilities locked in for twelve years, CLO equity has a unique ability to benefit from market dislocation. Even through the past 2+ years of spreads tightening, CLO equity has been able to take advantage of refinances and resets in order to help offset the spread compression witnessed across loan markets.
We are rolling our NII/share estimates of $0.64, $0.95, and $0.89 for fiscal 2018, 2019, and 2020, respectively. We expect loan market dislocation to boost earnings in fiscal 2019. ,” the firm’s analyst commented.
Shares of NYSE:XFLT opened at $9.16 on Monday. XAI OCTAGON FR/COM has a twelve month low of $9.02 and a twelve month high of $11.00.
In other news, insider Philip G. Franklin bought 3,206 shares of the stock in a transaction dated Monday, October 29th. The shares were bought at an average cost of $9.21 per share, with a total value of $29,527.26. The acquisition was disclosed in a filing with the Securities & Exchange Commission, which can be accessed through the SEC website. Also, CFO John Yogi Spence sold 6,680 shares of the company’s stock in a transaction on Thursday, August 30th. The stock was sold at an average price of $9.99, for a total value of $66,733.20. The disclosure for this sale can be found here. Over the last ninety days, insiders have bought 14,261 shares of company stock worth $139,341 and have sold 23,225 shares worth $229,961.
Institutional investors have recently made changes to their positions in the stock. Laurion Capital Management LP grew its holdings in XAI OCTAGON FR/COM by 511.7% during the second quarter. Laurion Capital Management LP now owns 201,075 shares of the company’s stock worth $1,838,000 after buying an additional 168,206 shares in the last quarter. Shaker Financial Services LLC grew its holdings in XAI OCTAGON FR/COM by 1,548.1% during the second quarter. Shaker Financial Services LLC now owns 186,233 shares of the company’s stock worth $1,702,000 after buying an additional 174,933 shares in the last quarter. First Trust Advisors LP bought a new stake in XAI OCTAGON FR/COM during the second quarter worth $210,000. Clear Harbor Asset Management LLC grew its holdings in XAI OCTAGON FR/COM by 46.1% during the second quarter. Clear Harbor Asset Management LLC now owns 31,925 shares of the company’s stock worth $292,000 after buying an additional 10,080 shares in the last quarter. Finally, UBS Group AG grew its holdings in XAI OCTAGON FR/COM by 48.1% during the first quarter. UBS Group AG now owns 219,696 shares of the company’s stock worth $2,076,000 after buying an additional 71,334 shares in the last quarter.
About XAI OCTAGON FR/COM
There is no company description available for XAI Octagon Floating Rate & Alternative Income Term Trust.
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