Pollen Street Share Discussion Threads

[cc2014] 24/2/2023 09:32

Hmm. Part of the challenge with this Trust is Pollen themselves.

The directors of Pollen have screwed over Honeycomb and at some future point they will screw over investors in the merged vehicle. It's intrinsic to the way they operate.
At the moment there is less risk of this due to the shareholdings but nevertheless I feel the need to knock off something for that.


Then we have area of business Pollen and the old Honeycomb operate in. Which is high risk, which doesn't really matter if all you care about is your fee not your client. Some of the investments are shocking. Of course at the moment the interest is getting paid on the debt so returns are great but it's not going to take much for them to start going bad and then they'll get valued differently.


My summary is that this looks like one of those investments where you will get great returns until the day it goes bad and on the day it goes bad you better get out quick. Except you won't be able to as there is so little liquidity on this share. At the wrong time the MM won't even take 1000 shares off you at the advertised bid. So, you'll have to get out before the market realises things have gone bad. So, I have to knock some more off for this.


For me it doesn't stack up on a risk/reward basis, but I'll not be surprised if it hits something beginning with a 6 before it hits something begining with a 4. Just don't be in it when it starts falling and there's no liquidity.

[riverman77] 23/2/2023 21:52

Good luck with it then. I'll definitely keep an eye on it to see how the asset management side develops.

[catabrit] 23/2/2023 20:25

So as a rule I don’t like getting into the weeds of whether someone should or shouldn’t invest in something. It’s entirely personal and we all have our different ways of valuing things.

Applying your 10% discount to TBV implies a 2023 fwd p/e of 4.5x p/e for the core franchise.

For me, that’s too cheap.

Whether I’m right - only time will tell!

[riverman77] 23/2/2023 19:54

I don't think any of the specialist debt investment trusts trade at book value. 10% discounts are typical. So I would value this at 0.9x tangible BV, plus whatever the asset manager is worth. Appliyng the typical 10% discount then the market is valuing the asset manager at around £60m according to my rough calculations - given its current lack of scale this sounds about right to me and not cheap enough to tempt me.

[catabrit] 23/2/2023 16:34

Not sure I fully agree with you on that Riverman. Credit-focused alts are very much in demand, as evidenced by the strong growth in AUM last year. That’s only going to accelerate. Do I think Pollen Street is worth the price Honeycomb paid, no - I probably don’t. They paid a big premium for Pollen’s future prospects. All I care about is Pollen Street’s value today. And that’s clearly not zero.

[catabrit] 23/2/2023 16:26

OK so I think I get you now. Then yes, I agree that it will likely trade off NAV until it changes the listing. My point relates more to intrinsic value which I care about a lot more. On that basis, it should be priced differently i.e. BV plus an appropriate multiple of f/wd FRE. That’s the arbitrage.

[rambutan2] 23/2/2023 16:21

Hi Catabrit, yes it chose to legally remain an investment trust, with the tax advantages etc that that offers. It is an AIC member. Its investor base remains IT investors. As long as this is the case it will, imho, trade off of the nav.

See the header for its sector and fellow (discounted) direct lenders.

[riverman77] 23/2/2023 16:17

Sorry but the vast majority of the value is in the balance sheet of the original investment trust - so NAV very much still the key metric. I suspect the asset manager has very little value, certainly only a fraction of the balance sheet holdings. It would need a significant increase in AUM before the asset manager is able to cover its costs and become profitable.

[catabrit] 23/2/2023 16:08

Hi Ram. Sorry I am a bit confused by your message. This isn’t really a trust anymore, is it? It’s a proper business now. Why should NAV matter for a b/s heavy alt with the exception of putting a floor on the probable downside? Pollen should trade at 1x BV plus a multiple on FRE reflecting its small-ish size, UK focus and future growth prospects. On that basis, it’s trading at a discount to intrinsic value.

The NAV stuff is meaningless. Surely?

Happy to get a counter and look, I don’t need to convince anybody of anything. We’re all big boys and girls and can form our own opinion on things. But I would love to know why you see it that way vs how I see it considering my experience of buying alts (which I have never lost money on btw).

[rambutan2] 23/2/2023 15:59

So, they finally admit that the nav has rather dropped! No reason for this to currently trade at a premium to that 540p. Let's see over the next few weeks...

[catabrit] 23/2/2023 13:34

They have openly stated what the dividend will be this year and next and beyond. Don’t forget that the insiders have waived their right to receive a dividend for 2023 I think. I can’t recall the exact detail but it’s all there in the docs. Thus the current yield is a bit misleading in that it will drop once management start getting their pro-rata share.

[34adsaddsa] 23/2/2023 13:27

Why would you assume something they've said they're probably not going to do? They've said 51p minimum dividend in 2024.

[2wild] 23/2/2023 13:17

Assume they maintain the 16P quarterly, yield at 560p is an attractive 11.42%.

[catabrit] 23/2/2023 09:22

Yeah, no real surprises there. The tangible NAV is essentially the b/s, the old honeycomb stuff. The NAV reflects the price paid for Pollen Street’s AM biz. Whichever way you look at it, this is cheap. It’s rare for an alt to trade at book for long. The AM franchise is too strong to be ignored. Yes, Pollen isn’t global and thus isn’t anywhere close to being in big boy territory but perhaps that means investors will - eventually - pay a premium for its growth potential. Who knows? I continue to like it down here and think the catalyst will be greater familiarity and them eventually moving onto the main exchange. Meanwhile we get paid to wait as the underlying value grows. It would be nice to know the breakdown of fixed vs floating rate exposure. I will probably talk to IR soon as this is now one of my largest holdings.

[cc2014] 23/2/2023 07:59

The unaudited net asset value of the Group as at 31 December 2022 was GBP578 million, which is equivalent to GBP9.00 per share. The tangible net asset value was GBP347 million, equivalent to GBP5.40 per share.

[34adsaddsa] 18/2/2023 15:24

Q3 Trading Update was 28th November 2022, three months after that would be 28th Feb 2023. Should see something then for Q4/FY.

[breaceq] 07/2/2023 17:15

Anyone know when a market update might be due or some trading info?

[fred177] 05/2/2023 22:30

rambutan2 please can i ask what you find interesting says risk profile is 3 which is medium to low ?

[rambutan2] 05/2/2023 22:05

I am no fan of the KID, but always take a look at them for any interesting snippets:

[catabrit] 18/1/2023 14:45

This is slowly scaling the wall of worry. I like small daily moves like this. I don't want to jinx it as you never know but I think we'll look back at 510p as a no-brainer. I hate the term as there's always risk but I feel well compensated here.

[catabrit] 12/1/2023 20:46

Don’t forget the yield will drop in 2023 and 2024. It’s still double digit from memory but it’s not 12%. The plan is to then grow the dividend over time but I wouldn’t be surprised if they decide to trim it and reinvest back into funds / business. But by then, we should be home and dry.

[catabrit] 12/1/2023 20:43

Yeah, I think the old shareholders got screwed a bit. They paid a pretty big price to buy Pollen Street. Circa £265m which is a lot vs EBITDA. I think the 2023/24 forecast EBITDA margin of 50% plus is pretty aggressive. Usually this isn’t achieved until firms hit mega scale and Pollen Street is still small and niche. That said, it’s a problem to think about when the price reaches 700 or 800p. At current levels, the Pollen Street AM franchise is in for free if you’re happy to pay NAV for book which because they distribute, I am. The book looks well diversified albeit the exposure to bridge loans worries me. Hopefully they’re well protected by LTV and asset selection. I’m encouraged by the large equity stakes now owned by management and whilst there are lock up expiries down the line, I feel well compensated with this sort of yield and asset protection and upside value via the ownership of the AM arm. I can’t see it falling much beyond this and I think 510p is the floor. I could be wrong. I’d be really happy to buy on weakness.

[2wild] 06/1/2023 13:14

Looks like 510p bottom is in. All I can say for certain is they paid a 16p quarterly dividend last month. At 550p yield is a generous 11.6%

[catabrit] 21/12/2022 10:58

Hi CC. I understand the point you're making. In my experience, the 'interpretation' of the ebbs and flows of the share price says more about the 'minds' of us investors rather than the fundamentals underpinning the shares themselves. Most of the time, it's just totally random. If something shoots-up, there must be a buyout on the way! Or a contract win! If it drops, the opposite. I also don't think the speed of the decline is that alarming - it has been heading south since the merger announcement basically. And perhaps rightly so. A lack of insider buying is also a potential red flag but let's not forget the multi-million pound insider buys amongst numerous US tech executives this year, all of whom are massively underwater. There wasn't much to be gleaned from that signal. Interestingly, some of my most successful investments have had no insider buys at the time of my purchase but perhaps that's because they - like the management team here - already owned a substantial amount of stock. People don't want to trim round the edges of an already concentrated net worth - even if it's a bargain.

I guess the point I am trying to make is, net net I don't know if there is much weight we can put on the fluctuations in the SP, nor the lack of insider buying. Sometimes it's useful. Sometimes it's not.

On the research point, I likewise tend to find that most people just see what they want to see. The longs will see the roses, and the shorts will see the weeds. I don't yet have a firm view on the underlying loans but I will dig in and potentially revert and try my best at impartiality (a key trait of mine).

Rambutan2 - concur on the lack of scale vs the mega alts and it's clear that the industry is consolidating and that the bigger players will get bigger. Re the property loan point, UK real estate happens to be my expertise as I bought and sold circa £1bn of assets in a former life. I agree that this is an area that deserves caution in the new regime but it also represents a fertile hunting ground for those willing to extend credit as a lot of the competition tends to fall away. Those that remain get to command significantly better terms, more protection and much higher fees. So, both good and bad. Good for new business. Bad for the existing book.

I likewise concur about the poor comms since the merger announcement. It's a bit of a mess and not particularly clear and requires digging. That said, since this is no longer a trust per se and more of an operating biz with a b/s, regular NAV updates shouldn't be expected and should fall in line with quarterly or half yearly reporting. I would be amazed if NAV wasn't under a bit of pressure considering the wider backdrop. I will check in with my industry contacts to see what's happened since October. Sterling stabilising and Rishi stepping in as PM have probably restored a bit of credibility and investor confidence albeit I still think investor nervousness about real estate remains.

Thanks both for your valid input. Lets keep the dialogue going.