P2p Global Investments Share Discussion Threads

[spectoacc] 05/11/2016 20:25

@rl34870 - it's worse than that, FX needs really to both recover and stabilise. Look at it this way:

They've $ assets
£ goes down, $ assets worth more
Hedged via FX swaps
Net effect on company value - zero. What they gain in value of $ assets, they lose in negative value of FX swaps.
Only it isn't zero, because they've had to pump cash in to the swaps - call it collateral, call it margin - so eg £/$ moves and value of assets in $, marked back to £, rises say £50m. FX swap goes £50m into the red, which means stumping up £50m in cash.

Therein lies the rub - that £50m is real money, and should be being used for company purposes, ie making/buying loans and earning a shedload of interest. Instead it's earning zero.

Worse - how much liquidity (ie uninvested cash) do P2P & VSL need to keep, earning next to nothing, for further £/$ moves? What if it went to parity? Even if £/$ went back to $1.50, would you dare not have say £100m on deposit in case it swung again?

So for both companies, the latest idea is to gear/borrow, to "create" money to go into loans, with so much company money being wasted maintaining £/$ hedge. (When I say "wasted" - remember that it's only going against the corresponding increase in the value of the $ holdings. Just that it's wasted insofar as it should be invested in loans, and isn't).

[rl34870] 05/11/2016 13:12

SpectoAcc- are you saying that assuming current FX rates stablise at current levels and impairment losses remain within original expectations, the monthly returns will normalise to around 0.5%?

[spectoacc] 05/11/2016 08:03

@rl34870 - just the latest £ move caused VPC to have to put £62m in to their swaps - that's no red herring.

You seem to be confusing returns on the loan books with return on equity (far too much of which is getting tied up in swaps, not in loans).

They've both failed to hit earnings targets because of FX hedging. They've both been paying out more in divis than earnings. VPC, it's true, has reported some fairly hefty impairments but says it's the top of the cycle for that batch of loans (& suffer for having invested most at IPO, hence impairments not going to be smooth curve).

Both P2P and VPC been very clear about what's causing their problems. That RDL isn't hedged and has done so well is perhaps a better proof.

But I'd agree that impairments may yet become an issue.

[rl34870] 04/11/2016 20:34

I think the cash drag/ FX hedging issues are a red herring. The real reason for the large discounts to NAV for both P2P and VPC is market worries about rising level of impairments in a benign macro environment. The NAV returns since inception are perfectly acceptable so the share prices are indicating that future impairments could offset a large proportion of the coupons that the funds earn. Only time will tell. The level of impairments or "charge of rates" in this area have historically been very stable and profitable for the big banks over the last 20 years so the question is will these trends differ for the new breed of peer to peer lenders. Buying in at these discounts seems to offer a margin of safety.

[spectoacc] 03/11/2016 15:22

@Aroon001 - if they intended all along to use gearing, it was to enhance returns, not to supply cash for the hedging operation.

I guess dividends are eating into capital, so fall on XD not unreasonable.

[aroon001] 03/11/2016 11:29

Record low on the shares. This thing is like a bottomless pit. I suppose with such low yield/dividends it makes sense though at the moment.

Lower vol should reduce levels of margin required, rather than direction of gbp. but not sure lower vol lies ahead.

The gearing was always part of the plan so its not a new thing from P2P.

[anley] 03/11/2016 10:49

So I buy some "cheap" shares with my dividend!!

[spectoacc] 03/11/2016 09:15

XD today, fwiw (11p).

[anley] 01/11/2016 11:35

GBP has improved this last week but there is a long way to go before it has a big impact for P2P - in my view.

All I am doing from time to time is buying assets at a discount and reinvesting the dividend so I am prepared to wait for the discount to go to say 10% and then sell as the City boys have just got this one all wrong.

[wirralowl] 28/10/2016 10:27

P2P set to diversify into Europe, Real Estate & Receivables :

[aroon001] 27/10/2016 17:01

Ill have a check to see how much cash they are holding for margin purposes. Your point about putting down 10%, then it moves another 10% so they put down more etc is valid. But as non gbp debt matures each month, there should be conversions of the proceeds (or at least the 20% profit from the fx move) back to gbp that offsets the loss on the hedges and hence margin requirements should decrease.

The borrowing (to leverage) but keeping cash for margin is almost ironic. Its almost the opposite of what the fund should be doing. I suppose the only good news is that things cant really get much worse. GBP should stabilise, discount shud narrow, leverage should kick in etc.

[spectoacc] 27/10/2016 16:13

Well, delinquencies are also mentioned, with the comment that now is currently expected to be the peak (but "within expectations", which the returns certainly aren't).

"As described in the previous newsletter, the Company finished the quarter with a prudent amount of cash on its balance sheet, having
maintained meaningful reserves for its FX hedging positions. The Investment Manager has started to reduce the cash balances from their
peak and intends to continue expanding its debt facilities for the purpose of bringing net debt to equity levels to about 100% over the next
two quarters."

That's doubly interesting - firstly, your point about fx hedges only needing 10% ignores (a) the movement (put down 10%, moves 10%, needs another 10%) & (b) how much cash they've had to keep spare in case of further margin issues. Nothing new there, all in past RNS's. More interesting (to me) is that to get to 100% gearing (the only remote chance they have of meeting income targets IMO), they gear up what's left. So they're in the frankly daft position of having money, needing to keep a chunk of it in cash, and then borrowing money - at a cost - in order to lend it out and end up technically "100% invested".

Not a holder so I probably shouldn't spend so much time analysing it!

[aroon001] 27/10/2016 15:55

I'm sure the numbers are available somewhere but assuming say half the portfolio is non gbp and you have to put down 10% margin for gbp fx hedges that means just 5% of the fund needs to be held in cash for margin purposes. That shouldn't decrease monthly returns from 0.6% to 0.23%. Margin should have a very tiny effect. Something else must be the issue.

[davebowler] 27/10/2016 09:53

Liberum;
P2P Global Investments (BUY, Mkt Cap £712 m)
0.23% return in September

Event
P2P Global Investments' NAV at 30 September 2016 was 1010.84p per share which equates to a NAV total return of 0.23% in the month. The company has also separately declared a dividend of 11p per share for the quarter.

Liberum view
The company's Q3 report is yet to be published but it would appear further currency volatility may have resulted in increased cash drag contributing to the low monthly return. We calculate a NAV return of 1.0% for Q3 2016 and 3.3% YTD (assuming dividends are not reinvested). We believe the company needs to achieve 1x leverage in order to achieve an earnings yield of c.7%. Net debt to equity was 69% at the end of August and it is likely to take until the end of the year before the company achieves the target gearing level. P2P Global Investments currently trades on a 17.4% discount to NAV.

[spectoacc] 27/10/2016 08:15

@spec - I guess to be fair to P2P, the failure to hit the dividend target is only partly due to a failure in the business model (ie the loans). It's in much larger part due to their decision to hedge £/$ (I won't add to my many posts above except to say hedges are for gardens!). Thanks to £ volatility, they've had to keep a large amount of cash uninvested to cover the hedge.

This money isn't "spent" so there's an argument P2P are currently cheap & will roar back when they're able to put this money to work for the job it was intended, ie earning income from loans.

Not currently a holder atm.

[specuvestor] 27/10/2016 07:40

I bought the P2P Global C shares when issued at £10.00 per share last year. In the last year I will have received 4 measly interim dividends of 9.5p + 11.5p +11p + 11p (todays decleration). Thats 43p in total. a 4.3% yield on my original investment and a near 20% capital loss. This company have under delivered in every way. What a disappointing investment. Nowhere near the 7% yield they originally led us to believe and nothing like the 6.9% AltFi is indicating.

[davebowler] 17/10/2016 11:21

LIBERUM;

Peer-to-peer lending funds
Lending Club raises rates

Event
Lending Club released an update on Friday which included amendments to the interest rates it charges on loans and tighter credit policies. This follows similar measures which were announced in June.

Lending Club continues to observe higher delinquencies in populations with high levels of debt and lower credit scores. The trend is most notable in higher risk loan grades (mainly E,F and G which account for 12% of the overall platform volume). Higher delinquencies are evident in 2015 and early 2016 vintages.

Interest rates on Lending Club loans will increase by a weighted average of 26bps with increases concentrated in Grades F and G with only marginal changes to other grades.

Liberum view
Lending Club's statements regarding the credit performance of the loans is is supported by the loan book data. There has been a divergence in the credit performance of the higher and lower quality loans. Delinquency rates on the higher risk loans (E, F and G) from the 2015 vintage have risen more on a relative basis in comparison to the better quality loans (A, B, C and D) of the same vintage. This trend can also be seen in diverging performance of the gross charge off rates of the various loan grades.


P2P Global Investments invests in Lending Club loans and the majority of its capital is allocated to the better quality loans (graded A-C). The average coupon on the company's loans is 10.8%. As a barometer of the level of risk the company typically takes, the average interest rate on the 36 & 60 month loans from Lending Club's B-graded loans is 10.7%. The average coupon on VPC Specialty Lending's loans is 15.8% and it has experienced credit performance issues with a number of its US investments including Avant (higher risk US consumer lending) and Funding Circle's US loans (SME).

[spectoacc] 13/10/2016 12:35

Interesting, thanks @davebowler - was unaware of HONY and SMEF.

[anley] 12/10/2016 09:10

Time for another purchase by the company.............of its own shares.

[aroon001] 11/10/2016 16:17

yes true they will have more drag from hedging. fair enough. for myself id have to hedge myself if they didnt, so i guess i dont see as a cost per se.

But anyway if you are right you may be able to pick up the shares cheaper at some point! the discount of 15-20% seems pretty permanent.

[spectoacc] 11/10/2016 15:46

Although they've not said as much, and so I may well be wrong, I can't see them not having come unstuck again with that spike downwards in the £. ie they'll once again miss their earnings target because they're having to preserve cash to cover margin calls on the hedge.

As long as the £ stays volatile, they'll have to hold a proportion in cash rather than in loans - until they abandon hedging! ;)

No position in P2P co's for the moment - P2P & VSL remaining on watchlist, RDL just too close to NAV.