On Tuesday, UBS initiated coverage on shares of Nuveen Churchill Direct Lending Corp (NYSE:NCDL) with a Neutral rating and a price target of $18.00. Nuveen Churchill Direct Lending Corp is a business development company (BDC) that focuses on traditional middle market companies with earnings before interest, taxes, depreciation, and amortization (EBITDA) ranging from $10 million to $100 million. The firm is part of the TIAA organization and operates under the Nuveen umbrella.
Nuveen Churchill's investment strategy is characterized by a conservative approach, with a mix of 86% first lien and 14% junior capital investments. The firm targets a leverage ratio of approximately 1.25 times and offers a shareholder-friendly fee structure. These factors contribute to the firm's projected return on equity (ROE) of approximately 12.6% for 2024 and 10.7% for 2025.
Despite the positive aspects of Nuveen Churchill's strategy, UBS points out two key factors that curb the potential for the company's stock price to expand. First, given the current cycle, the market is inclined to favor more defensive BDC strategies, which typically include a higher percentage of first lien investments and lower leverage. Second, although Nuveen Churchill has a market capitalization of around $950 million following its initial public offering (IPO), it has not yet reached the scale—over $1 billion market cap—considered necessary to command a premium to net asset value (NAV).
The UBS analysis includes a projection for Nuveen Churchill's total dividend, forecasting a decrease from $2.18 in the fiscal year 2024 to $2.02 in the fiscal year 2025. This anticipated reduction aligns with lower interest rates and the sector's overall trend. The price target of $18.00 is based on an approximate 1x NAV multiple and suggests a total return potential of around 13%.
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