Tetragon Financial Share Discussion Threads

[davebowler] 10/8/2017 10:36

RNS
Tetragon Financial Group (TFG) reported a 2.8% NAV total return for H117, with positive contributions made by all asset classes in the portfolio. Although below the target 10-15% range, annualised return on equity for the half year of 7.2% was ahead of the 6.3% achieved in 2016. Tetragon's share price total return was 7.4% for the six months to end-June 2017, with the discount narrowing by 2.1pp to 36.4% over the period. Dividends continue their steady progression, with the Q217 dividend increased by 4.5% from Q216 to US$0.1750 per share, and Tetragon's 5.3% dividend yield ranks as the second highest in the Flexible Investment sector.

Tetragon's share price discount to NAV has steadily contracted since February 2016. The current 36.2% discount is narrower than its 39.5% five-year average but is wider than its five-year low of 20.4%, leaving significant scope for the narrowing trend to continue. Tetragon's 5.3% dividend yield ranks as second highest in its Flexible Investment sector peer group, significantly ahead of the 2.2% average.

[davebowler] 23/6/2017 14:43

htTPs://www.investmentweek.co.uk/investment-week/news/3012283/tetragons-dear-we-want-the-opportunities-when-disaster-strikes?utm_medium=email&utm_campaign=IW.SP_09.Daily_RL.EU.A.U&utm_source=IW.DCM.Editors_Updates&im_edp=fpcfinancial.co.uk&im_company=

[davebowler] 22/6/2017 10:25

Liberum;
CLO funds
Slowdown in loan spread compression

Event
Carador Income Fund and Blackstone GSO Loan Financing (BGLF) have both announced NAV gains of 0.9% for May. US CLO debt tranches performed relatively well in the month (gains of 1.1% and 1.8% BB and B tranches) during a broadly positive period for credit markets.

BGLF completed a €50m investment in Blackstone / GSO US Corporate Funding, the adviser's US affiliate which established two new US CLOs in the month. BGLF now has exposure to three US CLOs in its portfolio. BGLF has also applied to the UKLA for a premium listing on the Main Market (currently specialist fund segment). The quote will also change to Sterling to enable the company to be included in indices.

CLO funds - NAV performance


May-17
YTD
12 months
Fair Oaks Income Fund
n/a
5.8%*
31.5%*
Carador Income Fund
0.9%
3.7%
24.9%
Volta Finance
0.6%
3.3%
19.3%
Blackstone/GSO Loan Financing
0.9%
1.3%
7.3%


Source: Liberum estimates *figures to end of April 2017

Despite relatively low supply, spread compression across the loan market has decelerated. Loan issuance was the lowest month YTD with €5.6bn in Europe and $44.3bn in the US. In Europe, low loan supply in addition to a high level of prepayments led to an increase in the supply shortage. Loan repricing remains relatively high in the US and this is expected to continue into the end of Q2 2017 with 68% of the loan market trading above par.

CLO equity investors have largely been able to offset the reduced yield on loan portfolios by refinancing/resetting CLO liabilities although the pace of refinancing activity slowed in May. Carador reset once CLO during the month which resulted in a 16% increase in valuation.

Liberum view
The reduction in yield compression echoes what NB Global Floating Rate Income Fund has been experiencing in relation to a slowdown in repricing activity as the yield to maturity on new issues has remained steady. CLO equity investors have benefited from the ability to refinance/reset CLO debt tranches at a lower average cost to maintain the arbitrage of the portfolio spread over the cost of funding. The length of reinvestment periods is also increasing to the benefit of equity investors. The CLO funds trade on an average 0.7% discount to NAV (10.9% dividend yield).

[davebowler] 12/6/2017 10:44

TwentyFour Asset Management views on CLOs;

The recent trend of spread tightening across the fixed income space is also impacting the leveraged loan market, with spreads tightening from 4.8% to 4.25% (Moody’s Analytics) on average over the past year.

Not surprisingly, the more recently issued CLOs are more acutely impacted as they lack a base of more seasoned, higher yielding assets. These new CLOs are forced to buy lower spread assets, with the most recent deals investing with a weighted average spread of 3.8-4.1%. In addition, prepayment speeds are at elevated levels and hence we expect the average spread for 2015-2016 transactions to reduce further.

Over the same period, however, average returns for the equity tranches have remained fairly stable. We have looked at the relevant statistics to understand what is happening to these transactions and how they can still pay the equity with a stable return.

The initial reaction would be that managers must be increasing risk to maintain the same equity pay-out. However, we can see this has not been the case, when we look at the “Weighted Average Rating Factor” (WARF); it has deteriorated slightly but remains relatively comfortably around the B2 rating level. Encouragingly, over the same period we have seen portfolio diversification significantly improve.



Source: Moody’s Analytics

So managers have not added a significant amount of risk, spreads are tighter, but equity yields have been fairly stable? The first factor contributing to this is that default rates of leveraged loans are running at very low levels and even “distressed221; assets (priced below 80c on the dollar) are running at the lowest level seen since the financial crisis. The second factor has been managers selling assets, especially fixed rate bonds, that rallied a long way above par that became inefficient for the CLOs. Selling these assets at a premium resulted in a yield boost for the equity tranches. Lastly, and probably the most important factor, has been the ability of CLOs to adjust the cost of the liabilities to the new assets’ environment. Around €15bln of CLOs (source : Morgan Stanley) already repriced their liabilities focusing mainly on the senior, IG-rated part of the capital structure especially the AAA rated tranches that are the main driver of a CLO’s cost of funding, representing on average 60% of the total stack. As a result CLO spreads have tightened 60-250bps over the past 12-months in the AAA to B rated classes; although there remain large differences between managers and between vintages.

This is one of the reason why CLOs were one of our top picks for 2017, and with BBs yielding around L+6% they still deliver attractive returns in a low yield environment without compromising on credit quality. That said we remain cautious on equity tranches, as the arbitrage is thin with little room for error and specific manager selection is now more important than ever!

[bench2] 26/5/2017 12:32

On the move at last

[wexboy] 30/1/2017 03:26

Tetragon Financial Group (TFG:NA, or TFG:LN) (5.5% of current portfolio):

Share Price: USD 12.55

Market Cap: USD 1,172 Million

Looking at the longer-term chart, one might presume TFG’s NAV discount has been closing steadily…but in reality, the shares have mostly been tracking NAV higher. After the recent $50 million tender offer, I estimate NAV’s increased to $20.12 per share (all else being equal)…leaving Tetragon trading on a 38% discount to NAV. And stripping out net cash, it actually trades on an ex-cash 50% discount to the value of its investments & asset management platform. Noting TFG’s balance sheet strength, its record of compounding NAV by 15% pa in the last 5 years (& 12% pa since the original 2007 IPO), a generous & progressive dividend policy (which now offers a 5.3% dividend yield), and a history of tender offers & buybacks ($250 million+ in the last 3 years), this valuation makes little sense.

Two main objections are generally cited: The first being Tetragon’s portfolio, which is supposedly chock-full of CLO equity…whereas in reality, CLO equity now amounts to just 24% of NAV, a ratio that continues to fall. The second is management itself – certainly well deserved, based on past history – but TFG now has 24% insider ownership, and management has actually demonstrated consistent alignment with shareholders in the past few years. Quite obviously, growing the asset management business & increasing the share price/NAV has become a far more lucrative proposition now than attempting to gouge shareholders.

Fortunately, technicals confirm this: After trading a tight $9.50-11.60 range for most of the last 4 years, the shares broke decisively higher in December – I wouldn’t be surprised to see a $14 price handle soon (& further progress in due course). Management is also placing increasing emphasis on the AUM growth & earnings of TFG’s alternative asset management platform, currently focused mainly on credit, real estate & infrastructure. AUM has grown (primarily organically) an astonishing 33% pa in the last 4 years, to reach almost $19 billion now – despite the growth focus, it already boasts 30-40% EBITDA margins. Management also dual-listed the shares in London, expanded research coverage, invested more time in dial-in & road-show presentations, and has now begun wooing the business press – the ultimate intention here is to IPO the alternative asset management business.

But I’m also conscious another of my holdings here – Fortress Investment Group (FIG:US), also a cash-rich & under-valued alternative asset manager – is actually TFG’s largest shareholder (controlling a 14-15% stake). I’d actually rate the chances of a merger/takeover here just as likely as an IPO, noting FIG’s long & extensive experience with building investment platforms & spinning out permanent capital vehicles…

For this & other top picks, check/Google my latest 'Top Trumps For 2017...' post on the Wexboy investment blog.

[atholl91] 14/11/2016 20:39

Tender $50m when Q3 show net cash over $400m. Tender Price is 10.80 -12.00. NAV is $20 per share. Why would anyone tender cause it defeats me?

[atholl91] 25/8/2016 09:19

NAV is now $20 per share with $400m in cash. Last tender offer of $100m was at $10 - must do another another soon.

[flying pig] 16/6/2016 14:00

$ denominated. Weak £ and price goes up.

[a_mclart] 12/6/2016 08:22

Is TFG exposed to Brexit? I think that as its assets are not held in GBP it is protected from any fall in GBP in the remote chance of a Brexit?

It reports in USD.

[flying pig] 19/5/2016 21:31

I like as long term hold.
I will not be offering any of my shares.
I look forward to asset value increase as shares bought in at a huge discount.

[atholl91] 16/5/2016 10:38

Have held these for few years. Leon Cooperman of Omega is a significant holder and said buy last week as Discount to diluted NAV +45%. Any ideas on tender offer?

[flying pig] 09/11/2015 08:46

Listed today as specialist fund in London.
I expect some positive re-rating.

[davebowler] 31/1/2013 10:16

I don't hold any of these but I do like RECI very much, so have set up this thread.
Liberum;


Tetragon Financial Group (TFG / U/R / $11.52) – December NAV +8.5%

n Pro-forma NAV +8.5%: TFG has reported a pro-forma NAV per share of $14.65 at 31 December 2012. This represents an 8.5% increase from November (November 2012 $13.51 after adjusting for shares in escrow). The NAV increase is due to the impact of the recent $150m tender offer (+$0.65 per share impact) and a portfolio valuation uplift (+$0.60 per share impact) at the end of December.

n Changes to mark-to-model assumptions: A number of changes to the valuation model for the CLO equity investments were made at the end of December. Medium term default assumptions have been reduced for US CLO equity positions to reflect the decline in the maturity wall and marginally increased for Europe to bring them in line with the US.

n Discount rates tightening: TFG has also reduced the applicable discount rates on the projected CLO equity cashflows for both US and European CLO equity investments. US discount rates have reduced to 17.5% for strong deals and 22.5% for other deals (Q3 2012: 20% and 25% respectively). European discount rates have reduce to 27.5% for all deals (Q3 2012: 30%). The discount rates on more recent CLO vintages (2010-2012) are determined by each deal's IRR and the weighted average discount rate was 12.4% at December 2012 (Q3 2012: 12.2%).





Liberum View:



n The portfolio valuation uplift in the month is encouraging and we think the amendments to the model assumptions are reasonable considering the robust credit market conditions in 2012. Investors may have concerns over the mark-to-model nature of the portfolio valuation given the lower level of transparency. The process creates a potential conflict of interest for the investment manager due to the quarterly resetting high watermark on the performance fees but we regard the assumptions as conservative. It is the first time any of the model assumptions have been changed since December 2011. During this time the S&P/LSTA Index and the European Leveraged Loan Index returned 9.66% and 9.48% respectively.

n TFG's shares have rerated significantly (+36%) since the company's tender offer announcement in October and the stock now trades on a 21.4% discount to NAV. Our recommendation is currently under review.

[kenmill] 05/6/2003 10:31

Must be at least a strong hold now. Whether someone goes for the company or it continues its previous plan of steadily buying up small companies in the same field to keep a 20%+ increase in annual profits going, it looks rather cheap at around £5. A price nearer £6 would seem more appropriate for this rate of growth and the price seems to be ticking up now as, currently, it is £5 - £5.20. One to tuck away for the long term.

Cinven/Candover, now they have both the Wolters Kluwer and Bertelsmann subsidiaries, are not going to sit on them forever. Institutions like this normally want to see an exit within 3-4 years, so they will either continue building to float it off or trade sell it in that time. Now that scientific publishing has had its profile raised and seen to be a good business, there is likely to be more activity.

[jardinerie] 31/5/2003 00:09

Does anyone have any info as to what is going on??

Lowish volumes and no price change for a few days now, wondered what is happening.

[kenmill] 17/5/2003 15:20

It now looks as though the company is in play, after failing to acquire the bertelsmann subsidiary. One of the private equity outfits will surely go for T & F if it isn't Cinven/Candover themselves. No longer a subject for the Bear Club I think. A take out between £6 -£7 would be needed and 3 directors awarded themselves options at 432.5p last week !!

[kenmill] 04/4/2003 17:40

Anthony Foye, FD, purchased 10,000 shares today, in the company of other steady buying. This gives good support at this level

[bearstalker] 19/3/2003 08:59

Good results and still the sysnergy benefits of the CRC purchase to come through

[kenmill] 17/3/2003 10:49

With the results due out on Wednesday, analysts have a consensus prediction of £32.5 million of profits (up 20%). With the shares up 4% this morning in a falling market, it appears the market is confident there won't be any disappointments.

[bearstalker] 04/3/2003 16:21

still good buying going on

[kenmill] 04/3/2003 10:03

I don't think so