8 May 2024
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LMI Market News
IIR Initiates Coverage on Metrics Income OpportunitiesTrust (ASX: MOT)
Metrics Income Opportunities Trust (ASX: MOT) was listed in April 2019 raising $300m through the issue of 150m units at a price of $2.00 per unit. The Trust is managed by Metrics Credit Partners (MCP) and is the second LIT issued and managed by MCP, the first LIT being Metrics Master Income Trust (ASX: MXT).
MOT provides exposure to a portfolio of private credit investments. It does so through investment in and alongside four wholesale funds managed by MCP, with the Trust seeking to provide exposure to the full spectrum of private credit investments. The Trust is mostly exposed to loans, however, may also provide investors
with the potential for upside gains through exposure to private equity and equity-like securities. The portfolio will be exposed to low investment grade and sub-investment grade loans (BBB to Not Rated), with the portfolio, historically having a focus on sub-investment grade exposure. The portfolio is positioned to provide exposure to the higher end of the risk spectrum in private credit. This is reflected in the enhanced target cash distribution of the Trust of 7.0%p.a. The Trust has a target total return of 8%-10%p.a., which reflects the potential for capital gains as well as income with the Trust having the mandate to invest in private equity and equity-like securities in addition to loans.
IIR assigned a Recommended rating to MOT. MOT is intended to provide a higher risk/return profile than that of MXT to provide those investors with a greater risk appetite and access to an enhanced income. The portfolio has historically had a focus on sub-investment grade loans and therefore entails the additional default risk associated with these companies. Investors should be mindful that defaults generally tend to cluster during periods of prolonged economic weakness. MOT has not met its cash distribution target in recent times with declining interest rates resulting in the Trust not being able to achieve the fixed rate target. We expect the increasing interest rate environment will assist with achieving this objective more regularly moving forward.
To view the full report please visit the IIR website (www.independentresearch.com.au).
Earnings Season Wraps Up
The news headlines in August were dominated by results releases with the FY22 results period wrapping up at August end. Volatility in the market, particularly the 2H’FY22, was a drag on portfolio performance and impacted earnings for a number of LICs. From an income perspective, it was positive for shareholders with 84% of LICs declaring a final dividend in line or greater than the previous year (not including special dividends). We will be releasing a full earnings wrap-up in the coming weeks.
EAI Assessing its Options
In its FY22 results released on 30 August 2022, Ellerston Asian Investments Limited (ASX: EAI) reiterated that the Board is seeking to materially reduce the discount and is seeking to deliver to those shareholders who desire liquidity at a price more closely approximate to the underlying asset value, a clear pathway to redeem at NTA while also providing other shareholders with the option to remain invested in the strategy. The Company will provide an update on the various alternatives that the Board has been examining and the proposed next steps at the upcoming AGM.
Alternatives are being considered primarily because of the consistent discount that EAI has traded at throughout its history, as shown by the below chart. The Company has implemented a buyback program and resolved to pay a regular fully franked semi-annual dividend, which the Company has done since 2018.
No Dividend for Tribeca Global Natural Resource Limited (ASX: TGF)
After a strong 1H’FY22 which provided hope for the Company to pay a maiden dividend for the FY22 period, market weakness in the 2H’FY22 resulted in the Company reporting a loss of $11.8m and not declaring a dividend for the period. It remains the Company’s intention to pay a dividend at a time when the Company is in a position to do so.
Djerriwarrh Investments Limited (ASX: DJW) Raises $63.5m
On 23 August 2022, DJW announced the results of a Share Purchase Plan (SPP) that was announced earlier in the month. There were applications from 20.8% of eligible shareholders, with the Company raising $63.5m through the issue of new shares at $2.78 per share.
Diversified United Investment Limited (ASX: DUI) Announces Share Purchase Plan
On 18 August 2022, DUI announced a Share Purchase Plan (SPP). Eligible shareholders are able to purchase up to $30,000 of new fully paid ordinary shares in DUI. Shares will be issued at the lower of:
The closing date of the SPP offer is scheduled for 26 September 2022 with shares scheduled to be issued on 30 September 2022. Participants in the offer will not be entitled to the final FY22 dividend.
The capital raised will be used to invest in DUI’s portfolio.
VG1 Updates Dividend Policy
During the month, VG1 announced that the Company is amending its dividend policy. The Company previously had a target dividend yield of 4%p.a. calculated with reference to the share price. The Company will now seek to pay dividends on a semi-annual basis with the payment of at least 4.5 cents per share per half-year period. The Board intends for dividends to be franked to the fullest extent possible and will seek to grow the dividend payment over time. After adjusting for the final FY22 dividend, the Company has 55.3 cents per share in the profits reserve, providing over 6 years of dividend coverage for a 9 cents per share full-year dividend payment, subject to the Company having sufficient franking credits.
The change in the dividend policy comes after a steep decline in the VG1 share price over the FY22 period. The continuation of the target dividend policy based on the share price would have resulted in significant dividend volatility. The amended dividend policy provides a level of dividend stability for shareholders.
VG8 Updates Dividend Policy
During the month, VG8 announced that it had amended its dividend policy. The Company previously had a target dividend yield of 4%p.a. calculated by reference to the VG8 share price. The Company will now be seeking to maintain a semi-annual dividend of 5 cents per share and grow this over time. The Company will seek to frank dividends to the fullest extent possible.
The change in the dividend policy comes after declines in both the NTA and share price over the FY22 period. The continuation of the target dividend policy based on the share price would have resulted in significant dividend volatility. The amended dividend policy provides a level of dividend stability for shareholders.
PGF Provides Dividend Guidance
On 11 August 2022, PM Capital Global Opportunities Fund Limited (ASX: PGF) announced it intends to maintain a minimum semi-annual dividend payment of 5 cents per share going forward, subject to there being no material changes in market conditions and the performance of the portfolio.
The dividend guidance is consistent with the dividend guidance provided for FY22 of a full-year dividend of at least 10 cents per share, which the Company delivered.
The Company provides an attractive dividend yield based on the FY22 dividend and the dividend guidance.
Scheme Meeting for WLE Merger with AEG Scheduled for 15 September 2022
The Scheme meeting to consider and vote on the merger of Absolute Equity Performance Fund Limited (ASX: AEG) and WAM Leaders Limited (ASX: WLE) is scheduled for 15 September 2022 after the courts approved the convening of the meeting during the month.
The Scheme proposes that WLE will acquire 100% of the shares in AEG, with AEG shareholders receiving WLE shares as consideration. The number of WLE shares issued will be based on the ratio of the pre-tax NTA of the two companies on the Calculation Date.
If the Scheme is approved and becomes effective the following will occur:
There will be no cash consideration offered as part of the Scheme. AEG shareholders who do not wish to participate in the Scheme may sell their shares on market prior to the Effective Date (22 September 2022). The market price received may be more or less than the implied value of the Scheme.
