Secured Income Share Discussion Threads

[makinbuks] 20/3/2018 21:42

Hardly anything happened in February. NAV reduced again as the dividend was not fully covered. We don't know if they increased impairments. Cash increased by 1.7% to 10% which is part of the reason the dividend is uncovered but they keep insisting funds are fully committed. I wonder if there is an issue with loans not being fully drawn?

[makinbuks] 20/3/2018 21:35

If they can't issue new shares they could gear up a little to boost performance

[makinbuks] 20/3/2018 21:19

Half year report confirms broadly what has been posted here previously, namely:

Dividend not currently fully covered (albeit statement re the full year and the weighted average gross yield is encouraging)

Expansion of the Company by issuing new shares cannot happen unless or until the shares trade at a premium

Comments regarding the demand for loans are encouraging also.

The point about consolidation in the industry as interest rates rise and credit quality becomes an issue is new for me and its not immediately clear what sort of opportunity they envisage.

The impairment notes are surprising. £500k impaired but not written off or approx. 1%. But frighteningly £1.4m overdue (approx. 3%) and of that £1m (2%) more than one year. Apparently no impairment provision required. Really? So someone doesn't pay you for over a year but you still think its reasonable to assume you will be repaid in full? We only have the time element of the equation to consider so the security must be rock solid. Lets hope so.

Cost control looks pretty good and there will be a saving once Amberton disappear as joint managers. The fact that they are retained for two extra months shows that the transition is ongoing and problematic. Costs remain high in percentage terms which is another reason the fund needs to be much larger to be truly viable

[spectoacc] 16/3/2018 11:10

Quite a bit of info in the Half Yearly, not been through it all but had to laugh at the second para of this:

"The Board expects the Company to achieve its annual
fully covered dividend target of 6.25p by the year-end,
rising to 7.00p thereafter.

Discount
For the reporting period, the Company traded at an
average discount to NAV of 2.4%. The directors would
prefer to see the Company's shares trade at a premium
to net asset value and we believe this is warranted
given the progress made in reducing platform loan
exposure coupled with the very low default and impairment
performance. "

[spectoacc] 20/2/2018 12:54

Yes, and why the dip in returns in Jan? Bad debts?

[makinbuks] 20/2/2018 09:55

Apologies I was misled by the spin, the NAV actually decreased in the month showing again that the dividend is partially actually coming from capital. Around 1.5p per year. If you strip that out of this years payment it means the yield is really 5.2%

[makinbuks] 20/2/2018 09:43

Fairly uneventful month in January. Good to see NAV increase. Number of loans continues to decline, now 118 and the cash balance increased again a couple of points to 8.4%. I guess that's just timing as they have said previously they have a full pipeline but it does highlight the challenge they are having churning the funds.

On the face of it a 7.5% yield (assuming the July target is kept) and 6% discount looks a good entry point.

[spectoacc] 09/2/2018 15:46

Thanks - my guess is, they'll make a good case to keep it going, ie still hold the vote but make sure they've the votes largely sewn up first.

Still happy to hold here, whatever the market does - but ever-wary of how this & others will fare in a recession. Amazes me how badly some have performed in boom times! (SQN...).

[makinbuks] 09/2/2018 13:15

The original announcement simply states: "enhance the prospect of increasing the size of the Company through share issues in due course". However, there is a commitment to increase the dividend to 7p per share from July this year and there is a winding up vote at the end of 2019 if the net assets are less than £250m (5x todays value). They clearly envisaged being able to make it a similar size to SQN but given events there and rising interest rates the return to days of a premium at which to conduct share issues seems a distant prospect. Of course they can always change their mind about the wind up vote and move it forward a couple of years as happened last time. Or indeed shareholders might vote not to wind up

[spectoacc] 08/2/2018 13:28

How long did they give themselves to increase in size? I can't remember.

[makinbuks] 08/2/2018 13:27

Change of bankers signals a further move away from Guernsey I guess. Not sure I agree with the comments about the lack of need for custodians and depositary. OK it might not be a regulatory requirement but it is best practice. Perhaps if the fund value was larger it would become more cost effective

[hugepants] 25/1/2018 19:44

Interesting. Thanks for the bit of background Mr Buks.

[makinbuks] 25/1/2018 14:01

Good question. They have a new manager SQN who started in the middle of last year and the number of loans originated by them is gradually increasing. They also manage the SQN Asset Finance Income Fund which has experienced some problems in the last six months with potential defaults (see discussion on the SQN board). The old manager was part of GLIF which has bombed itself. It is a mixture of a pretty decent asset manager and a bunch of investments in loan platforms. Few, if any of these platforms make money as they are not at critical mass. Its not clear to me what happens to the loans if a platform fails. Fortunately as time goes on the influence these platforms have over this fund will decrease

[hugepants] 25/1/2018 11:04

6% discount to NAV and a 6.8% yield paid monthly. Secured loans apparently. Just how secure though?

[spectoacc] 20/1/2018 07:28

Or just a function of having more money out on loan? I've no idea - certainly if SQN is anything to go by, we need to keep a close eye on any loans going sour.

[makinbuks] 19/1/2018 17:24

I see accrued interest is increasing, now 2.1%. Something to be concerned about? ie its accruing because its not being paid?

[makinbuks] 19/1/2018 17:16

Yes another 5 loans repaid (net), cash reduced to 6.4% NAV back to July value and December growth of 0.73% is impressive

[spectoacc] 19/1/2018 09:16

A slight improvement this month @Makinbuks? Needs sustaining but still happy to hold here.

[makinbuks] 12/1/2018 17:23

I agree and personally I'd probably go along with allowing them some more time. Maybe they also need to revise downward their target size. It was a huge growth projection and it may mean they revise their own business model. The problem with secured lending is the cost of legals and financial due diligence in every transaction so they need to be a decent size to make it worthwhile

[spectoacc] 11/1/2018 14:16

Indeed, although since SQN's poor lending to solar & Snoozebox & others is specifically to blame for SQN's discount to NAV, they've made the rod for their own backs! Missed the chance to get a share issue away early methinks. My guess is they'll ask shareholders for an extension to wind-up date, and that we'll likely approve.

[makinbuks] 11/1/2018 12:55

Yes they cut the dividend and have also lent at higher gross rates of late so the NAV dilution over the year is possibly more historical. You're right they have announces a wind up deadline and also ambition to increase the dividend but they're going to have to work hard to achieve that. Non the less churning 27% of assets since April or May when they came in is impressive I think. Regarding a share issue, they're a bit unfortunate the way the market has turned in the last 6 - 9 months making issuing shares at a premium much less likely

[spectoacc] 09/1/2018 07:18

They need to build the co up with a placing soon too, or else it'll get wound up per the original promise.

Surprised divi is dragging NAV down - they cut it when they took over of course, also with plans to increase it in future.

Merger with SQN.L would once have been an option - but surely not now!

[makinbuks] 08/1/2018 19:01

Loans outstanding again reduces to 126 and the cash drag goes up to 8.2%. Looks like there's another 6% or so redeemable in the Jan - Mar 18 quarter or around £3m. They're having to run pretty quickly to reinvest. SQN have now invested 27% of the fund since they took over

Good to see November's increase in NAV of 0.5% although it has still declined by more than 2% over the year highlighting that the dividend was unsustainable.

SP close to all time low despite lack of newsflow. They could do with finding a way to get a bit of hype behind them

[makinbuks] 01/12/2017 15:58

Over on SQN where there continue to be issues I noticed this:

"The Company is also pleased to announce that it has now successfully re-financed two anaerobic digestion plants generating premiums over the already-attractive initially projected yields. Since the Company's year-end, a total of six transactions have come to conclusion, all at premiums to the initially projected yields which maintains the weighted average yield on all completed transactions at over 12%."

I wonder if SSIF was part of that refinancing and the 12% loans mentioned are the ones that appear on the table of our largest loans

Can the manager refinance from one vehicle to another and charge a fee?