LMI Monthly Update: August – Switzer Daily

IMT Market News

IIF Launches MetricsTrust Income Opportunity Coverage (ASX: MOT)

Metrics Income Opportunities Trust (ASX: MOT) listed in April 2019, raising $300 million through the issuance of 150 million 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 this by investing in and alongside four wholesale funds managed by MCP, with the Trust seeking to provide exposure to all private credit investments. The Trust is primarily exposed to loans, but may also provide investors

with potential for upside gains through exposure to private equity and equity-like securities. The portfolio will be exposed to low quality and below investment grade loans (from BBB to unrated), with the portfolio historically focusing on below investment grade exposure. The portfolio is positioned to provide exposure to the upper end of the private credit risk spectrum. This is reflected in the Trust’s improved target cash distribution of 7.0% per annum. The Trust has a target total return of 8% to 10% per annum, which reflects the potential for capital gains as well as income, with the Trust mandated to invest in private equity and equity-like securities in addition to loans.

The IIR has assigned a recommended rating to the MOT. MOT is intended to provide a higher risk/reward profile than MXT in order to provide these investors with a greater appetite for risk and access to increased income. The portfolio has historically focused on below investment grade loans and therefore involves the additional default risk associated with these companies. Investors should keep in mind that defaults generally tend to cluster during periods of prolonged economic weakness. MOT has not met its cash distribution target lately with the decline in interest rates, which has prevented the Trust from meeting the fixed rate target. We expect rising interest rates to help achieve this goal more consistently in the future.

To view the full report, please visit the IIR website (www.independentresearch.com.au).

Earnings season ends

News headlines in August were dominated by earnings releases, with the FY22 earnings period ending at the end of August. Market volatility, particularly 2H’FY22, weighed on portfolio performance and impacted earnings for a number of PFRs. From a revenue perspective, it was positive for shareholders with 84% of PFRs declaring a final dividend equal to or greater than that of the previous year (excluding exceptional dividends). We will post a full recap of the results in the coming weeks.

EAI weighs its options

In its FY22 results released on August 30, 2022, Ellerston Asian Investments Limited (ASX: EAI) reiterated that the board was looking to significantly reduce the discount and seek to provide shareholders who want liquidity at a price closer to the underlying. asset value, a clear path to buy back from NTA while offering other shareholders the opportunity to stay invested in the strategy. The Company will provide an update on the various alternatives the Board has considered and proposed next steps at the next AGM.

Alternatives are being considered primarily due to the consistent discount EAI has traded at throughout its history, as seen in the chart below. The Company has implemented a buyback program and decided to pay a regular semi-annual fully franked dividend, which the Company has been doing since 2018.

No dividend for Tribeca Global Natural Resource Limited (ASX: TGF)

After a strong 1H’FY22 which gave the Company hope of paying a first dividend for the FY22 period, market weakness in 2H’FY22 led the Company to report a loss of $11.8 million and to not declare a dividend for the period. The Company’s intention remains to pay a dividend at a time when the Company is able to do so.

Djerriwarrh Investments Limited (ASX: DJW) raises $63.5 million

On August 23, 2022, DJW announced the results of a share purchase plan (SPP) announced earlier in the month. There were applications from 20.8% of eligible shareholders, with the company raising $63.5 million through the issuance of new shares at $2.78 per share.

Diversified United Investment Limited (ASX: DUI) Announces Share Purchase Plan

On August 18, 2022, DUI announced a stock purchase plan (SPP). Eligible shareholders can purchase up to $30,000 of new, fully paid-up common stock of DUI. Shares will be issued at the lower of:

  • $4.69 – a 3% discount on the DUI closing price the day before the announcement, adjusted for the FY22 final dividend; Where
  • The VWAP of the DUI price over the last five trading days of the SPP offer period.

The closing date of the SPP offering is scheduled for September 26, 2022 and the shares are expected to be issued on September 30, 2022. Participants in the offering will not be entitled to the final FY22 dividend.

The capital raised will be used to invest in DUI’s portfolio.

VG1 updates its dividend policy

During the month, VG1 announced that the Company was changing its dividend policy. Previously, the Company had a dividend yield target of 4% per annum 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 semester. The Board of Directors wants dividends to be franked to the greatest extent possible and will seek to increase the payment of dividends over time. After adjusting for the FY22 final dividend, the company has 55.3 cents per share in earnings reserve, providing more than 6 years of dividend coverage for a dividend payout of 9 cents per share over the entire year. year, provided that the company has sufficient franking credits.

The change in dividend policy comes after a sharp decline in VG1 share price during the FY22 period. The continuation of the target dividend policy based on the share price would have led to significant dividend volatility. The amended dividend policy provides a level of dividend stability to shareholders.

VG8 updates its dividend policy

During the month, VG8 announced that it had changed its dividend policy. The Company previously had a dividend yield target of 4% per year calculated by reference to the VG8 share price. The Company will now seek to maintain a semi-annual dividend of 5 cents per share and grow it over time. The Company will seek to pay dividends to the maximum extent possible.

The change in dividend policy comes after the decline in NTA and share price during the FY22 period. Continuation of the target dividend policy based on share price would have resulted in a significant dividend volatility. The amended dividend policy provides a level of dividend stability to shareholders.

PGF provides advice on dividends

On August 11, 2022, PM Capital Global Opportunities Fund Limited (ASX:PGF) announced its intention to maintain a minimum semi-annual dividend payment of 5 cents per share going forward, subject to no changes important in market conditions and the performance of the portfolio.

The dividend forecast is consistent with the dividend forecast provided for FY22 of a full year dividend of at least 10 cents per share, which the company has distributed.

The Company offers an attractive dividend yield based on the FY22 dividend and dividend forecast.

Scheme Meeting for the merger of WLE with AEG scheduled for September 15, 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 September 15, 2022 after the Courts have approved the convening of the meeting during the month.

The Scheme proposes that WLE acquire 100% of the shares of AEG, with AEG shareholders receiving WLE shares in return. 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 program is approved and becomes effective, the following events will occur:

  • AEG Shares will be exchanged for WLE Shares on the Implementation Date. The number of WLE shares issued for each AEG share will be based on the relative pre-tax NTA of AEG and WLE on the Calculation Date;
  • AEG will become the sole property of WLE and AEG will be delisted from the ASX; and
  • On the business day following the Implementation Date, AEG shareholders, in their new capacity as WLE shareholders, will be able to trade their WLE shares.

No cash consideration will be offered under the program. AEG shareholders who do not wish to participate in the Scheme may sell their shares on the market before the Effective Date (September 22, 2022). The market price received may be higher or lower than the Program’s implied value.

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