Honeycomb Investment Share Discussion Threads

[rambutan2] 19/2/2022 21:48

I bought a few on thurs/fri at av of 850p. I quite like the merger idea, as Pollen could add real growth to the company. Do think the initial valuation of Pollen St rather high, but the discount now available helps offset that and the cut of the div. And if the price continues to fall then the parties involved will come under pressure to either abandon or sweeten the deal for HONY holders, I would have thought.

[gez] 18/2/2022 18:33

hxxps://citywire.com/investment-trust-insider/news/sweet-deal-for-pollen-street-as-alt-manager-to-float-through-honeycomb-merger/a2379573



hxxps://citywire.com/investment-trust-insider/news/trust-watch-cheap-growth/a2380101

[cc2014] 18/2/2022 10:41

Well I committed some more cash to this. On reflection I'm happy with the trade.

If it doesn't rise from 850p I'll be happy to collect the dividend. I'd prefer it goes back to something beginning with a 9 though.

[medieval blacksmith] 18/2/2022 10:23

If you look at the percentage of (non institutional) liquid stock it is small. It wouldn't take much to shift the price much lower. All because the liquidity is showing at 845 doesn't mean its intrinsic value has shifted too. Potential institutional volume trade could be much different to current market price either way. Shareholder value hasn't been destroyed, it is still pretty much where it was prior to the announcement.

[yieldsearch] 18/2/2022 10:12

Closing price 14.02.2002: 967.5 pence
Now 845/860 so 11.1% down

Nav was 1017 in nov, so really now at a discount of 16%

more than 11% decline since the RNS. interesting that the market has a different view than Quilter/CC beekeeper/phoenix/Caledonian and M&G, reprensenting 50.4% of the issued share capital and supporting the deal. They are institutional investors so really should know? Egg in the face?

if further decline, i guess the deal will be pulled out.

The best would be to have some active investors getting involved to 1) get rid of pollen street 2) get rid of the board of directors supporting a deal that is, on current market pricing, destroying value for existing shareholder.

[cc2014] 18/2/2022 10:04

Is 842.85 a good price? No idea. I bought a few. I'm a bit nervous about it.

[cc2014] 18/2/2022 09:23

Double post

[cc2014] 18/2/2022 09:23

Every time I look at HONY I have to keep remindining myself of three things:

1. Their investment in AMGO.
2. Post 22 regarding Investment manager at PSSL not providing information to the Board
3. The actual investments in HONY which make me wonder about the security in a squeeze on disposable income. Sancus Loans is the one that stands out.

Of course you can't get a 9% dividend without risk.

[spectoacc] 18/2/2022 08:58

Strange isn't it.


From the RNS:

"Expected to create significant value for Honeycomb shareholders"

Not so far.


"EPS accretion in the second full year post closing for Honeycomb's shareholders"

That's further away than it seems.


"...Larger market cap and potential future FTSE 250 inclusion"

Pollen get 45%, so HONY 55%, but let's assume mkt cap doubles. Even at 975p pre-deal, it was only a £340m co - £830m was FTSE250 inclusion last I looked, so nowhere near, even less so now. They'll be more like £600m.


"..A differentiated purpose-led asset manager"

That fails the Terry Smith test of no BS.


"The investment portfolio profile of the Combined Group is expected to remain in line with the investment profile of Honeycomb on a stand-alone basis"

So why do it? If you hold a high-yield IT, it's because you like a high-yield IT.

[redhill9] 17/2/2022 10:36

The announcement was presented as being a very positive move for Hony shareholders including the comment "the potential for significant re-rating and valuation upside.

I'm guessing the move away from being an IT will have put off some current shareholders as, apart from it being a slightly odd merger and concern perhaps over dividends, I couldn't see any other particular aspect that might be considered negative.

I bought Hony for the dividend which has been held at the 20p per quarter level consistently for some years and I suppose there must be a risk of the share dilution affecting this payout (although 50% of the new shares won't receive dividends until 2024 which will reduce the short term dilution impact, if any).

They talk about dividends cost increasing over the next three years with £30m expected to be paid in 2022 (assuming the merger goes through) increasing to £32m in 2023 and at least £33 in 2024. This compares to a cost of dividend of £24.5m in 2020 (the most recent year available but I'd guess 2021 will be similar) so it looks as though the deal may have been structured that, broadly, existing Hony shareholders receive much the expected dividend over the next three years but with reduction possible when all the new shares are eligible, unless profits have grown enough in the interim for this not to have an impact.

I'm intending sitting on my holding unless a material change in the dividend policy becomes evident.

[cc2014] 17/2/2022 10:26

#41. To add to Yieldsearch's comments reading from around post2 20 will throw up some other red flags about the actions of the manager of the Trust.

I am struggling to unravel the transaction other it makes no sense to me for HONY shareholders. Again as Yieldsearch says why would a debt investor want to end up with a hybrid debt and asset manager?

It seems designed to back parts of Pollen Street into a listing as a potential exit for Pollen Street shareholders. But only parts of Pollen Street. And then parts of the existing and future business of other parts of Pollen Street is included.

I am not able, or sufficiently interested to try and fully understand the transaction. As with everything with Pollen it is insufficiently transparent to ensure I fully 100% understand what's going on.

We all like a bargain but I can't work out whether this is a bargain...

Somehow Pollen seems to have got the major shareholders on board and then the other shareholders have looked at the transaction and then run a mile.

[medieval blacksmith] 17/2/2022 10:25

Well, this is my take:

(1) Previously you had a circle 8.4% dividend yield. Now that will be 6.5% and 6.6% if projections materialise. I don't see why not.

(2) In return for the reduced dividend yield you get exposure to profits of a PE company. OK, it's 25% going forward but this is no different from a company having a minority interest in another. Plenty of those on the stock market already.

(3) Yes, the make-up of the investment has now changed but I see the interests of PE capital are now more aligned with those holding the debt capital rather than before where there was a conflict of interest on business flow. Read my previous posts.

(4) Investment Trust wrapper is being removed which was trading at discount to NAV and so if market price reflects NAV exposure there should be some intrinsic benefit to be had there.

(5) Yes, it could well that there is incentive for PE capital holders to realise holdings but there are restrictions as clearly defined and one has to question what is in it for the institutional debt capital investors if there was no rationale from their point of view.

(6) I think that because they are now more than just a debt capital provider forward growth prospects - if the PE equity group is respected - should be looked on more favourably which may include a rerating upwards.

(7) I think the share price fall since the news are those selling due to uncertainty and alteration of the investment thesis. Most likely low volume retail investors.


I have actually decided to buy some tranches based on this news.

[peterjw] 17/2/2022 10:04

Many thanks for your replies. I found the announcement strange and am trying to understand it.your comments are very helpful..I have small exposure in hony. I'll read replies in more detail later.
Thanks

[yieldsearch] 17/2/2022 09:52

peterjw:
1) reduction of dividend:" with a 6.5% and 6.6% dividend yield on such shares in 2022 and 2023 respectively, based on the Honeycomb share price of 967.5 pence on 14 February 2022"

2) people bought for the dividend and credit exposure (a debt fund). now reduced dvd and mix of debt fund income and asset management fee. If i am buying a car, i don't want it to turn into a minibus.

3) Even if one is believing that receiving carried interest from PE funds, you will only get 25%. where is the 75% going if 100% of the asset manager is merged into Hony?

4) some individuals will have large exposure of the combined(i think up to 30%). Call me cynical, bu the whole purpose of this was to make their shareholding in the asset manager liquid, so they can monetise it overtime. so quite likely that they will sell overtime. potential overhang of 30%, this will unlikely trade at a premium. and those are insiders so will have to comply with rules as clearly they are shareholder and investment manager at the same time. just messy

5) conflict of interest. is management making decision for the stakeholders of the PE funds or for the asset management fee /income for Hony?

6) it would have been fair to offer HONY investors the ability to sell their shareholding at NAV. and whoever wants to stay can stay.

7) i have probably missed it, but there is not clear rationale for me mixing a debt fund and the asset manager. Hony was set up as a debt fund, why changing it? why not merging it with an oil company or a crypto fund? Hony directors must have a valid reason to change the investment policy, the dividend and the long term strategy of this company, it would be good to have it clearly defined.

i am not invested in this, i am monitoring all the debt funds. i would have sold on the announcement.

[andyadvfn1] 17/2/2022 09:52

It will cease to be an Investment Trust.If any HONY holders are in a similar position to myself they maybe sellers. Although I haven't sold yet ( I'm still trying to digest what it all means ) it does put into question why I shouldn't. I bought into HONY for the 8% regular income. Have doubts if this will apply going forward.May well suit some investors but not others. A a little bit miffed with it.

[peterjw] 17/2/2022 09:08

The announcement seems to have knocked the share price this week. Has anyone any views as to why this might be please?

[andyadvfn1] 15/2/2022 12:34

MB was 28 days ahead on this one

[yieldsearch] 15/2/2022 08:55

a debt fund merging with its asset manager. strange

[shstt1] 18/1/2022 10:34

Nobody reads your posts MD
You’re filtered by anyone with sense

[medieval blacksmith] 18/1/2022 10:28

CC2014

"My biggest concern with this Trust is how Pollen divide the business flow"

I first came across this company when Woodford introduced it into one of his funds. At the time Hargreaves Lansdown were open to investors dealing in HoneyComb and I purchased a small direct holding hopefully gaining good exposure to this sector. (I do buy the argument that opportunity has come within non-bank lending and I think good opportunity exists too with credit at POS which PayPal are actively engaged in.) Hargreaves Lansdown subsequently actively tried to negate retail investors from dealing in this stock on their platform but I don't know whether that is still true or not because I can still deal. Maybe it is still available to those who dealt in the past before their stance changed???

Anyway, onto HONY itself. There does seem a strange set-up now where Pollen business flow gets divided between debt of HONY and their own PE etc.. If you look at the holdings the majority is institutional which reduces liquidity, increases spreads and has you wondering whether another surprise might be sprung on us small PIs when an institution wants to get out (another trade at 850p?). This could always leave the trust in a constant overhang position.

One of the most important questions I would like answering is why these companies issuing credit to property developers and SMEs don't go to the money markets themselves rather than dealing with HONY. Their cost of capital would be instantly reduced if they were to remove the middle-man HONY. I guess it is down to licensing, regulation etc.. where perhaps HONY leverages Pollen because they are ex RBS with the right set-up and barriers to entry. Therein perhaps lies the problem that leaves HONY somewhat a puppet to Pollen even though they are supposed to be the selected 'investment manager': best costs for HONY and freedom to select manager are somewhat limited, no? Who is in control of who here? Anyway, it would be nice for a professional in this sector to enlighten us. Regardless, I'm not convinced Pollen and HONY investors such as ourselves have carbon-copy interests.

IMO & DYOR

[rambutan2] 11/6/2021 13:22

Am not invested, but this recent interview made me think of them in a slightly better light than previously:

[cc2014] 11/6/2021 10:37

Nope. I am concerned the assets they are invested in are overly sensitive to a consumer downturn.

But also:
"We note the recent developments regarding Amigo Holdings Plc and the court's decision to not sanction the scheme of arrangement. We continue to monitor the situation closely with the Honeycomb NAV exposure to Amigo senior secured bonds of GBP9.8m. As previously disclosed, Honeycomb adopts amortised cost accounting across its credit portfolio including the bond portfolio. This can differ to the on-screen market value of traded securities. As at 26 May 2021, the market value of the Amigo bonds was GBP8.3m".

So, the market value is £8.3m but the value in the NAV is £9.8m. They are carrying it in the books at 18% higher than the market value. I can't say I fully understand what amortised cost accouting is but it makes a mockery of the NAV and management fee. (or rather I'm reasonably sure I do know what amortised cost accounting is and don't think they should be applying it but instead sticking to AIC guidelines).

[asmodeus] 11/6/2021 10:05

Is NOBODY interested in this Trust?

[spangle93] 18/8/2020 09:35

Thanks CC2014. I hold (in hope) PSSL so I was trying to understand, based on the HONY merger proposition, why the latter should have such a discount and yield relative to PSSL.

As Rambutan says, the proposed merger makes a lot more sense for HONY investors than PSSL holders on the face of it.