OFS Capital Corp (OFS) stock intrinsic value fair value estimate & owner earnings analysis

OFS Capital is an externally managed business development company that lends to U.S. middle-market companies (mainly first-lien and second-lien loans), holds some equity, and owns CLO securities. Its shares are a claim on the income of that portfolio after the interest it pays on its own borrowings. How we measure earnings. Cash from operations at a lender like this is dominated by buying and selling loans, so it says little about earnings. We use net investment income (interest and fees received less expenses and interest cost) plus realized gains or losses on investments, per share. Realized losses are counted because they are actual credit losses, not accounting noise. The record. Net investment income per share was $1.46 in 2016, $1.28 in 2017, $1.38 in 2018, $1.43 in 2019, $0.92 in 2020, $1.00 in 2021, $1.37 in 2022, $1.50 in 2023, $1.25 in 2024 and $0.92 in 2025. Realized results per share were a gain of $0.25 in 2016 and $0.55 in 2017, then losses every year since: $(0.36), $(0.29), $(0.75), $(1.54), $(0.13), $(0.85), $(1.28) and $(0.91) for 2018 through 2025. Combined, earnings per share after realized losses were $0.01 in 2025 and $(0.03) in 2024. In 2025 the company realized about $12.2 million of losses, mostly on structured finance securities and debt investments. Distributions paid in 2025 were $15.9 million, of which the company estimated 67.2% was a return of capital, meaning payouts exceeded what the business earned. Net asset value per share has fallen from $15.18 at the end of 2021 to $9.19 at the end of 2025 and $8.41 at June 30, 2026. What is getting worse. In the first half of 2026 net investment income was $3.5 million versus $6.7 million a year earlier, and the second quarter alone was $1.0 million, following $2.5 million in the first quarter. Realized losses in the first half of 2026 were $17.3 million, more than the whole of 2025. Total assets fell from $346.7 million at year-end 2025 to $304.5 million at June 30, 2026, and net assets were $112.6 million. Non-accrual loans were $14.4 million at fair value (4.2% of investments) at year-end 2025, down from $20.8 million (5.1%) a year earlier, which is a real improvement but small against the losses. Leverage is high: $220.5 million of debt at year-end 2025 gave asset coverage of 156% against a legal minimum of 150%. The 2028 and 2029 unsecured notes and a bank facility extended to February 2028 mean there is no near-term maturity wall that we found, but a further fall in asset values would squeeze the cushion and restrict distributions. Anchor and growth. The median earnings per share after realized losses over 2020 to 2025 was about $0.09 (that window covers a downturn and the recovery of 2022; earlier years describe a portfolio with far fewer credit losses). Because net investment income has fallen for four consecutive quarters, we set the base-case level below that median, at $0.05 per share. Last completed year earnings were $0.01 and the base case starts at $0.05, above that; the reason is that 2025 carried an unusually large realized loss relative to its income, and the median level is the demonstrated normal, but we do not credit any improvement beyond it. No growth is credited: the portfolio is shrinking, and nothing secured or repeatable supports growth. Bear case: value of $0 per share. Realized losses of roughly the size seen in 2024, 2025 and the first half of 2026 continue against a shrinking income base, so earnings after losses stay negative and leverage limits the company's ability to recover. On the earnings-based method used here, and without adding balance-sheet assets on top, the shares are worth $0 in this case. This does not mean the $112.6 million of net assets vanishes; it means the stream we can evidence does not produce positive value in this case. Base case: $0.45 per share. Earnings after realized losses of $0.05 per share for ten years, then fading to zero over the following ten years as the loan book seasons and no named driver replaces it. Bull case: $3.75 per share. Realized losses fall to about $0.20 per share, close to the $0.13 seen in 2022, and net investment income holds near $0.60 per share (2025 was $0.92), giving about $0.40 a year for ten years, then fading over ten years. Supporting evidence is the decline in non-accrual loans in 2025 and the 2022 precedent. What would make this wrong. The main risk to our low values is that our method treats realized losses as recurring while they may in fact be lumpy write-offs of older, already marked-down positions. Net asset value of $8.41 per share is far above our values; if the portfolio were liquidated at book, shareholders would receive much more than our earnings-based estimates. We have not credited that, because a sale at book value is not something the filings show is planned. Conversely, if realized losses continue at the 2025 to first-half 2026 pace, even our base case is too high. Margin-of-safety price. Given the record of losses in eight consecutive years, high leverage, and falling income, the estimate calls for a very large discount: the margin-of-safety price is about $0.25 per share, and it applies only once the business conditions described above are also in place. Numbers for the first half of 2026 come from the quarterly filing; full details of realized losses by portfolio company for that period could not be reconciled here.