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Did anyone notice this financial highlight in the annual results announcement on 25th March:
"To align Princess with the broader listed private equity universe, the Board agreed for the Company to discontinue the hedging of currency exposures from 1 April 2023."
Oh right, so it didn't have anything to do with the fact the board were responsible for losing 60m Euros of shareholder capital. What was it may father once told me about leopards and spots....
Nice looking trend since the beginning of the year, but what on earth is going on with 700 odd tiny trades today ??
The half year report is satisfactory with NAV increasing to Euro 14.77, and the share price creeping up during the period. The following comment made by interim chair, Fionnuala Carvill:
"My fellow Directors and I would like to take this opportunity to thank you for the continued confidence you have shown in Princess during the first half of the year. Acknowledging the sensitivity in Princess not fulfilling its dividend objective in 2022, and the impact that had on shareholders, it is our belief that Princess offers an attractive long-term investment case within Listed Private Equity with a well-respected Investment Manager that is well placed to navigate the current environment. "
has a conciliatory tone that will offer some appeasement to those shareholders willing to forget/forgive the inept foreign currency trades that destroyed a large amount of shareholder capital.
I am not willing to forgive/forget, but it appears they did at least listen.
Evening Guitarsolo,
I believe we both may be suffering from the same ambivalence. Whilst I am disgusted with the managers over the FOREX debacle, the decision to cease hedging does put a different complexion on things. Further, like you say, they do have a history of investing in some fairly decent companies. My position remains the same in that I have lost too much for it to
be worth selling my holding, so I'll see what unfolds over the next 24 months.
This is not to say I will ever trust the managers again, though!
Cheers
DM.
Afternoon Damien,
Just checking in here (although currently not a holder) and I see there have been a few developments! NAV is about where it was when I bowed out in December (c.EUR 14.5) but they have ditched the F/X hedging! Good! Cash flow dependecy is more important (imo) than "smoothing" out the NAV (which it didn't do either!). No sign of contrition by management you say? Huh, doesn't surprise me. That was what p***** me off more than anything else, the fact they thought they should play F/X games with my dividend and then not say sorry when they ******ed it up.
Did I bow out too soon PCPunter? Well, the share price is about where I left it (I know it has recently been higher), but I invested the money in MNG which is also about where I bought, but I've earned about 7% in dividends since. So, I'm happy enough with that.
I did well enough out of PEY between 2015-2022 and am pleased to see they've reinstated the dividend. They aren't bad at picking investments and have a nice geographical spread. Without the F/X risk (unnecessary imo) the NAV should do OK from now on.
I will keep an eye on it and would buy again now that the F/X risk has gone and at least one of the execs responsible has gone. I'll probably wait to see having funds available coincides with a short term mis-valuation by the market.
Glad to see PEY is on a better path!
GLA
Guitarsolo
The managers have decided to cease forex hedging, thus bowing to the likely shareholder pressure resulting from the huge forex losses they incurred. Alongside dividend reinstatement, the outlook is (by perception) better than it was. The managers still refuse to apologise for their error, citing "NAV stability" and the chair, Richard Battey, is stepping down and disappearing without any accountability. He retires, in my opinion, on a very sour note, but no doubt he'll still receive the gold pen (and some).
My transaction at 11:35 was definitely a purchase, so are probably all the others.
Perhaps Guitarsolo jumped ship too early. I still think this is very cheap. The discount will surely close if they re-instate the dividend.
Does this sudden jump in SP mean a rumour that divi is being reinstated ?
Evening Guitar Solo,
Your decision is well-reasoned. For me, I will stick with it for now because I have lost too much, and I have a vain hope the managers will change their spots! It will also serve as a reminder of the opacity that comes with private equity investing. I note that, through the latest Edison report, they have decided to make it clear that 90% of the US investments are hedged to the Euro. Laughable that they should indulge us in this transparency after the event. I think this is called "shutting the stable door after the horse has bolted".
Such a shame and disappointmnt. To think I had many years of trusting and respecting the managers.
DM
Hello Damien,
I decided to sell all my holdings (taking advantage of the intra-day 7% rise a couple of days ago). I got all tranches out for over Euros 9 which is a profit but down from where it was obviously.
Ultimately, I considered it unacceptable that the company takes currency risks which can cost more than the entire annual dividend (5% of NAV). Of course, it can gain by an equal measure but if I wanted to play the currency markets I would choose something different to a PE company investing in a broad range of private companies.
In addition, your comments about the lack of contrition during that presentation were accurate. They didn't really apologise and, if they think it is part of the risk, then there is a large currency gamble. A minor amount of hedging to flatten the curve I could live with. Positions that could lead to losses (or gains) greater than an entire year's dividend in a high-yield share, I can't.
Good luck to those who continue to hold. I hope there are no more forex hiccups for you.
Guitarsolo
Big rise today. Looks like a leak - maybe some news Wednesday?
Anyway I am staying in here, think it is way undervalued.
Thanks Damien, I agree with much of your sentiment that it is unacceptable that these forex losses are somehow unexpected or that the risk was necessary given the natural diversification.
I will possibly see if we have a Santa rally or an improved Nov. NAV.
Re investing for in-laws, ha! yes I know. But they know I do it for my mother and know nothing about investing themselves. It adds to life's stress you might say!
Many thanks for sharing this, Guitarsolo.
"Reviewing their options". Well, congratulations to them. After destroying a large chunk of the company's value on forex positions, they have come to understand that betting on currency markets can result in losses. Doh!!
And what are these huge losses for?? To hedge a portfolio of investments that is already inherently hedged via geographical diversification - pardon? And furthermore, to hedge to Euros when the shares are listed on the London Stock Exchange, where British investors need dividends in GBP - pardon?
Congratulations on selling a holding here - you've just idiot-proofed this money, though you should not be investing for your in-laws. That may not end well.
I have received a reply from PEY Investor Relations to questions I submitted during the online presentation which I am happy to share. (Note, these weren't pre-prepared and were submitted quicly off the cuff!)
1) Given the geographical diversification of the portfolio, why the need to hedge at all?
Answer: "PG's Portfolio Management and Corporate Development team are scrutinising several options and in the meantime also gauging investor views on this topic. If you have a preference, please let us know."
2) How much of the F/X losses are factored into the Sept/Oct NAV figures?
Answer: "We have provided the October NAV of EUR 973.77M which includes the full amount of the fx loss."
I am pleased to see they are "reviewing their options" on forex, but given their attitiude during the presentation seemed to be that this was part and parcel of the private equity model, I doubt they will completely strip out hedging. Personally, I find this unappealing because what they seem to have done is put the whole success or failure down to currency hedging which is not why I would invest in private equity.
I am pleased to see that the entire forex loss is included within the Oct NAV of EUR 14.08. However, as the EUR 60m forex disaster is equivalent to about 80c per share, it shows that NAV would have been more or less static but for the hedging!
I've sold out of one position in my in-laws' account (!), at a loss, because I need stability there. That's been mostly reinvested in LGEN and a high-yielding REIT to cover the same dividend lost to PEY. I still hold larger holdings elsewhere and am undecided on the future. My trust in management has taken a dent and it is a question whether this is the sort of fund I want to be invested in.
The EUR continues to mildly strengthen against the USD so could those forex losses be reversing? Will November see a large rise in NAV?
Guitarsolo
Afternoon Damien,
Putting aside a discussion over management's credibility for another day, I note that the EUR/USD exchange rate on 1st July (PEY identified the first period to cause the forex losses was "July/August") was 1.0427....... and today it is..... 1.0418.
I know it is not quite as simple as that (!), but is it possible the EUR recovery could reverse a substantial amount of these forex losses? They indicated in the presentation there had been a recent partial reversal, which they wouldn't have mentioned if they didn't have an open position to benefit. They also said they hadn't changed their strategy.
Am I being too optimistic to hope some of the damage might have been repaired?! (whether by luck or judgment)
Guitarsolo
Good Afternoon, Guitarsolo. For me the management have lost credibility. Let's analyse this - they actually believed that forex contracts would achieve NAV stability. In other words, they assumed the forex positions were a one way bet, and there was limited downside risk. How unintelligent can they be?? How can an investor possibly place their money with people who have made such a peculiar, illogical assumption. Do you really want to keep your money invested with people like this?
I will stay invested, but not because I wish to. I have lost too much to make it worth selling.
Afternoon Damien!
I agree with you about the lack of contrition. But I did miss the first few minutes so I could have missed the grand mea culpa!
I remain concerned that the F/X strategy persists. A strong dollar is not exactly an extraordinary event (especially as the ECB is always slower to raise rates than the Fed).
But I think what sits most uncomfortably for me is that they seemed to think this was part and parcel of the private equity business model. The nearly Euros 1 per share F/X loss equates to about 1.3 years of dividends! Ouch. I was expecting a rogue employee/ unauthorised contract explanation!
I will take some time to consider this and see if there are any further developments. I'm invested to have access to non-listed companies supposedly at attractive value. I'm not here to play the currency markets!
Guitarsolo
Absolutely appalling nonsense. If they think today's presentation with all their financial jargon masks the truth of what they have done, they have a twisted sense of reality. Let me sum up the excuse they have made, versus the truth:
EXCUSE: “Hedging policy focuses on NAV stability”.
TRUTH: The hedging policy has actually introduced volatility to the NAV, and destroyed a significant proportion of the
company’s capital.
Where was the apology, or at least an expression of regret? So they think it’s okay that they have used the dividend money due to us to pay for THEIR mistake. How about using some of the 55 million Euros they took in performance and management fees during the 2021 financial year? Unless they feel that shareholders exist to take losses, while they take nothing but gains?
Where the hell is the Chairman? Is he going to say something about this debacle or just keep taking his pay cheques to be docile?
I just can’t believe the audacity and arrogance of the entire situation. Shame on the board, Shame on Partners Group.
I listened to most of today’s presentation and jotted down a few notes (a bit random but I don’t have much time!):
- They suspended (well, let’s say cancelled now) the H2 dividend because otherwise they will be a forced seller in the market, and they don’t want to do that.
- Why hedge at all? To keep the NAV as stable as possible.
- EUR/USD drop of -8% in July/ August cost EUR 32m in hedging contracts (daily margin).
- Further -6% drop in Sept/Oct cost further EUR 28m. Couldn’t afford the November dividend (H2) with that.
- Note, +4% reversal since then.
- PEY has EUR 50m in cash and EUR 38m in credit available.
- No exposure to senior loans (so presumably no pressure from banks re debt ratios…..I recall there was a warranty about a minimum MCAP, presumably no more).
- THEY HAVEN’T CHANGED THE F/X STRATEGY! But it is under review (including why they need to hedge at all given geographical diversity).
- Might move to longer term hedge contracts. But this will have the same problem, just less frequently.
- I submitted a written question about how much of the EUR 28m loss from Sept/Oct is already calculated in the end-Sept NAV. They didn’t answer during the presentation!
- So much management waffle about “sub-verticals, client facing optimisations”!
- Priority is the reinstatement of the dividend over new investments. Does rely on normalisation of the exit market. So credit conditions could still affect this.
- H1 dividend for 2023 to follow 5% NAV (Dec 2022). So no change in policy.
- Felix wanted to highlight that PEY has been the biggest dividend payer of its peers!
My own thoughts:
- EUR 60m / 69m shares makes this a c.EUR 1 per share loss
- If 4% reversal is proportionate then c.EUR 18m coming back from margin contracts.
- But F/X exposure still there!
- 8 months until next dividend, so share price could go anywhere!
- End Sept NAV was EUR 14.27……….if EUR 28m Sept/Oct loss not included in that figure, expect a 40c reduction (could be mitigated by positive F/X since).
Regarding the dividend:
"It is important to note that Princess' liquidity position is solid following the dividend suspension
• Princess dividend objective to pay 5% of opening NAV remains in place. Absent of a further significant USD
appreciation and assuming somewhat normalized exit markets, we expect to pay the next dividend in June 2023
• Suspended 2H22 dividend will not be paid"
Full pre-presentation slides available on Princess' website: https://www.princess-privateequity.net/fileadmin/PG_Princess/documents/Presentations/Conf_Call_Presentation/Princess_conf_call_Q3_2022_VF.pdf
Not good! But also doesn't seem to be worse than we've previously heard (I hope!).
It seems to me in plainer English that they have spent some or all of the divi cash on settling currency Hedging ???
Thank you for your input, mrcautious. Your comments are somewhat vague and off-topic. The recent drop in the share price is due to FOREX positions that have adversely moved against the company and resulted in suspension of the dividend. As a shareholder I am converned about the possibility the manager has mismanaged the fund given the extent of the losses. We are awaiting further details from them.
I've held this for years as an income generator and lets face it, it wouldnt be any good as a growth investment ! I dont fully understand their reasons for divi suspension, other than the fact that there have been outflows due to the lacklustre performance of this as a whole. Even when times were better it wasnt setting the sky on fire !
Well I was just about to say it's been a week since the bombshell and nothing..... As you say, they are at least saying they're going to provide some detail so that is good (better than obfuscation!). By setting a date as well it perhaps suggests they feel they have got to the bottom of it (however good or bad it might be). I mean, you wouldn't line up a presentation to say you don't know how bad it is yet!
Oh well, we sit and wait.
Interesting announcment today: "Princess will hold a quarterly investor update on 22 November......Princess portfolio based on unaudited figures as at 30 September 2022 as well as providing further background regarding the suspension of the second interim dividend for 2022." This is at least showing a willingness to provide detail on the issues we are all concerned about.