Gcp Infrastructure Inves... Share Discussion Threads

[cc2014] 27/6/2023 07:19

Jonwig. A really good question.

10 year gilt at end March 3.3%
10 year gilt now 4.3%

30 year show about a 0.7% movement over the same time.

Some of it will have fed through.

[jonwig] 27/6/2023 07:10

CC2014 - discount rates ... the UK yield curve is inverted. Long rates aren't moving much and the excitement is at the short end. Aren't asset backed funds pricing against the long end?

[cc2014] 27/6/2023 06:25

1. Transfer from bond proxies to corporate bonds/gilts
2. Transfer from bond proxies to bond funds
3. Less attitude for risk

As for who's selling I tend to hold a dim view of the performance of fund managers and their analysts. They of course are forced to invest when we are not but I do think they have better access to information that us PI's and pay better attention to certain key drivers

1. It is hard to us to judge the value of commercial property or solar farms but I think a good fund manager will see the transactional costs much more closely. I suggest what's actually going on out there in the real world shows much more pressure on asset prices than us PI's realise.

2. The discount rate. I do not wish to cause alarm or examine an issue that's not there but I think it is possible the audit industry may step in and assert itself over this. Because interest rates have moved up 5% but it's hard to find a fund that's moved their discount rate more then 1%. I'm sure someone will pop up and name one but I can't think of one.

This an extract from RNEW yesterday
Analysts at Peel Hunt, the trust’s corporate broker, this morning downgraded the stock from ‘outperform217; to ‘underperform’, noting that despite US government bond yields jumping from 1.5% to 3.7% since the start of last year, RNEW had only lifted the discount rate with which its values its cashflows by 25 basis points, or 0.25%, to 7.5%.

Without being alarmist imho this is a scandal and where the discount rates to be moved properly the NAV's of REITs, infra funds and renewalbe funds many of now which use DCF models with discount rates to calculate the NAV would get smashed.

The industry did this to improve the NAV's and the day JLEN moved from a traditional NAV based on "historic cost or revaluation cost" to DCF the NAV jumped 10%. They did nothing, they just changed the methodology.

It's all coming home to roost because the fund managers aren't as stupid as we think they are. They are running a "what would I pay for this?" whereas the financial press keeps telling us the discount to NAV should close. I agree it does need to close but it needs to close to the downside through appropriate maths.


That's not to say the falls may or may not be overdone and there shouldn't be some closure to the upside but more than 50% needs to be to the downside.


Or another way to think about it is to sense check today's price. I'll use NESF as I know it. Before Putin the share price was about 100p. Today it's about 95p. Is 95p cheap? Hard to say but long term electricity prices look like they will soon be back to where they were. In the meantime the opportunity cost of cash has gone up from 0% to 5% if you use the base rate. The argument is more complex than this but one might see 95p as not cheap, indeed as expensive. The fact the share price went to 120p makes it feel cheap but is it?

The discount to NAV on NESF is now around 12% and the financial press are already talking about NESF have to close it. Indeed NESF agree. They are going to sell solar assets (to who and at what price?) and buy energy storage and use the spare cash to buy back shares. In my mind it's all wrong. The discount to NAV exists because the DCF NAV is wrong because the discount rate is wrong. However, we will find out in due course, because if NESF do manage to sell the solar assets we will see the impact on NAV. I am intrigued to see if they can pull off this stunt.

[spectoacc] 26/6/2023 21:29

It is interesting to wonder who's selling, but if it's large holders (holder?), eg a major pension fund like one of the council ones, you wouldn't see the RNS's until they've finished. Not impossible they sold the REITs off on Friday, the infra/renewables ITs today.

Agree with the point about not seeing who the sellers are, when the ADVFN brigade are always long, some co's have director buys, and many have buy-backs in place.

Another thought - if these falls aren't on any visible panic selling, what would it look like if/when they are?

On Gilts - the 10yr has been improving, it can't explain Friday or today.

(Major holders in header re pension fund theory.)

[hindsight] 26/6/2023 19:48

Nope Resi property

When it went mad last year gilt holders thought sod this for a game of soldiers, we arent transferring wealth any longer
Especially when Bailey in the wheel house
And here we are, all be fine when resi drops 20%, mild 1990s

[chucko1] 26/6/2023 18:07

It may well be Gilts, but the relationship has hardly been a simple one, if viewed over insufficient time frames.

[kinbasket] 26/6/2023 17:48

For sure it's all about gilts.

It's the mechanism for the transfer of that to the market that interests me. It isn't just humans behind desks making decisions based on valuation anymore.

[williamcooper104] 26/6/2023 17:40

Nope; gilts That's it

[kinbasket] 26/6/2023 17:18

I've had a small toe in here for the first time.

I'd be interested to know if Passive is causing some of this decline. Also in Reits/PE/VC etc. I doubt passive reaches far into these corners of the market but volumes are low so it only needs a small amount of bot trading to move the price.

[jonwig] 26/6/2023 16:59

I bought back in last week, too after the latest presentation and results.

Since all these asset-backed things are bombing, we can probably forget company-specific issues, which are always the most worrying. ("We're all in it together" is quite reassuring.)

What's interesting is that I don't think selling here and elsewhere is all that heavy, so lack of buyers is having a disproportionate effect. Also, in all my portfolio of similar companies, there are no holdings RNSs showing a reduction, but a few showing an addition. So institutional holders aren't selling in quantity. But directors are buying in many cases. Also there's a lot of daily buybacks.

What's behind it all? Simple answer: we've no idea how far the BoE needs to go, and the BoE has no idea either. Or is it more complicated?

[stewart64] 26/6/2023 16:52

There are some top QUALITY bombed out Bond proxies out there. TRIG is probably the most highly regarded (it's Equity in renewables rather than just debt). Six years of prices increases undone(flash crashes aside) and back to the early 2017 price of 108p. ( 20% nav discount). I reckon maximum distress for Equities generally might be circa February 2024 ( housing correction plus 18months). Certainly was the case back in the Spring of 2009 whence the FTSE 100 plunged to 3500.

Which is why I am sheltering in Cash Bonds just now.

[spectoacc] 26/6/2023 16:40

Bought GCP (& SEIT) too early but agree there's a lot of value around atm. Perhaps one question is with them all selling off, is it better to identify the best quality & buy those.

[donald pond] 26/6/2023 16:38

It is incredibly cheap. There is a very low default rate on loans, lots of inflation linkage and the energy price predictions are well above where they were when this was trading at 130. It's not baffling as the whole sector is in the gutter but that surely cannot persist. But obviously nobody is buying when sellers are around

[spangle93] 26/6/2023 15:16

Who said "bottom is here" a week ago, sigh.

Looking to do the same as hugepants and invest more in SEQI and here, but at what point do you catch that falling knife?

[chucko1] 26/6/2023 15:07

All infra and renewables ITs seem to have joined the slamathon. I see that as encouraging.

[hugepants] 26/6/2023 14:17

On a 40% discount and 9.6% yield now.
Also got some SEQI which is on a mere 22% discount and 9.4% yield

[belgraviaboy] 22/6/2023 14:19

In for a chunk today, looks a tad oversold...

[donald pond] 21/6/2023 08:38

My guess is that some of the big holders here - local authority pension schemes and fixed income funds - have been/maybe still are reducing holdings. If their sole focus is to match income to liabilities and they need say 5% a year they have lots of options. But the dividend here looks secure. I would not be surprised if the portfolio was sold down tbh. Gravis can't be a happy place now: GABI has lost its managers and the team sold a big chunk of the business to ORIT at the top of the market. They can't sensibly make new investments or raise funds when trading at such a discount to NAV so fees will be down too. Be interesting to see if PDMRs buy in big here now closed period is over. They said they would when buyback started and share price was 20% higher

[donald pond] 21/6/2023 08:02

Results look ok. Amusing that the biggest downside NAV risk is if inflation drops sharply

[hpcg] 20/6/2023 13:23

I'd also add that the most recent big volume day was Friday, but it was nothing exceptional like a final liquidation, and volume for the month is pretty much the same as any other month.

I am still very slowly accumulating. I think it is following short yields a bit too closely. If 5 year auction at par 4.5% fills at that rate or close then this still offers a substantial margin even for a 10% principal loss with a 10% reduction in income.

[ptolemy] 20/6/2023 11:25

Why? Nothing technical to suggest the bottom is in; down 12 out of 15 days. It's oversold but need to see some elements of stabilisation.

[donald pond] 20/6/2023 09:03

Yup. Bottom in imo

[panshanger1] 20/6/2023 08:50

Anyone calling the bottom here ?

[spectoacc] 20/6/2023 08:12

13th June that D Stevenson CityWire piece - already hasn't aged well.