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To generate attractive, risk-adjusted returns, principally through income distributions, mainly invests in US and European CLOs or other vehicles.
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Hi damofarl, and today was also ex-dividend day, and a 2% drop back to NAV, 57.25 cents.
Wow, this company makes money on every angle.... I'll buyback shares at at a discount to NAV to be accretive, then I'll sell due to demand the shares I just bought at 55c for 57.5c, whilst reaffirming buyback plan (rinse, repeat?).
The gift that keeps on giving
I'm assuming this is because we are now at NAV. So how about an increase in dividends then ?
Hi all. The buyback seems to have stopped, but no announcement.
They have bought 24,019,083 (which are held in treasury) which does not equate to the original $20m buyback intention.
Indeed, Happy New Year all FAIRies.....
Boringly, reassuringly, very much business as usual here.
On the buybacks, generally I'm not a fan, but I feel it is irrefutable they have worked here (because they weren't done at the top of the market (to inflate performance fees/renumeration etc), but done for the reasons stated - to reduce NAV discount. And in that it is quite noticeable than from being daily, without fail, they are now far more sporadic, and whilst nowhere near the totality of their mandate, with, amongst other things, currency fluctuations, they have obviously come up against breaching that buybacks should be at less than NAV.
The discipline in such, just reinforces the proactiveness, professionalism of FAIR to me, and my belief.
The spread is striking - minimal for this kind of stock, and indubitably a consequence of the buybacks.
And I have to say, I am now a convert to the fixed 2c quarterly dividend. Itt gives continuity/security, and must surely release mgmt from making short term decisions for a quick flattering return to making long term strategic income yielding.
And arguably BB's have returned in addition to yield - and whilst this may discount my long believe that there will be a special, in fact, the accretive nature of those BB's only reinforces my view.
I chuckle every time I think of FAIR - this supposed high risk/specialist/professional investor stock has been for me, a constant worry free rewarding bedrock.
Until the next update/divvy, good luck all FAIRies
Agricore; John Authers' 'Points of Return' today rather reinforces my view on China - and the rise of others, such as India.
Good to see FAIR being consistent with their buyback, and high dividends (next ex-div expected mid Feb), starting the new year in the same way they finished the last. What's not to like ))
Thanks for the clarification.
That makes more sense, now that I've studied the company some more.
Hi Canetoad; nice to see you dropping in. Welcome.
No FAIR is not in wind down, albeit about 18 months ago, acknowledging the NAV discount at that time (well over 20%) and prior to it's daily buybacks since then, it gave holders the option to choose between carrying on, or choosing exit through a new wind down share (FA17), or a mixture of both. The wind down FA17 shares, in theory, receive the income from one of the major loan obligations which is nearing fulfillment/wind down, but not the new ongoing originations. Bearing in mind that stockholders who chose the redemption (FA17) shares did so on a like for like basis, and considering the relative SPs of both, and that FA17 has received identical dividends since inception, I would argue FA17 is actually receiving disproportionately more return that it warrants - indeed arguably the FA17 offers an arbitrage opportunity. Hope that helps.
Those. are the. Realisati0n. shares not the. current. Fair Oaks. 21 shares
Newbie question. Is the company being wound up?
I noticed several RNS mentioning 'compulsory partial redemption':
=====
8 Dec 2024:
'The Company announces that it will return US$2,100,000.00 on 20 December 2023 (the "Redemption Date") by way of a compulsory partial redemption of Realisation Shares (the "Third Redemption").
The Third Redemption will be effected at 57.15 US cents per share, being the NAV of the Realisation Shares as at 31 October 2023 of 59.15 US cents per share less the dividend for the period to 30 September 2023 of 2.00 US cents per share.'
=====
That looks like a 10% repurchase of shares @ NAV, which is barely above spot atm?
Hi Damofarl,
That was an interesting article.
It contrasts with the article I included in my FAIR article, here:
https://theoakbloke.substack.com/i/140055091/so-clos-are-bad
https://blog.clarion-capital.com/clos-endured-the-great-financial-crisis.-will-clos-suffer-the-fate-of-cdos-in-the-next-one
The reconciliation in my mind is that general debt default levels doesn't equate to CLO default rates due to overcollateralisation, diversification and active management a CLO manager conducts on our behalf.
I hope I've done justice to FAIR. As I say in the article it was a tricky one to cover, and not to fall into the "it's complex therefore it's very risky, therefore impossible to write about" narrative I've seen in other articles. Nor did I want to leave it at "take the yield and hold your breath, it's been ok so far".
Agricore; a while ago you asked on my views on China generally, but specifically to it's underperformance impacting wider to the kind of CLOS we hold. I didn't answer that at the time, because, while my gut feeling was inconsequential, I didn't really have any thing to evidence such.
I subscribe to John Authers Bloomberg mail out, which I invariably find instructive, on wider market impacts. He recently mentioned the bond/debt markets and whether they were prone to a fall, in which he (and a footnote link to a colleagues article), stated that actually far from being a potential precipice, they were becoming an increasingly important, influential and integral part of the lending ecosystem. Basically becoming mainstream.
You have to subscribe (free for the newsletter) but the article is John Auther, Bond Market, Not Banks, Dominates a World of Looser Lending..
Kenton, I was about to post on BGLF about that. The wind down/return of equity was pencilled for December 2023 at earliest, but today's cancellation of treasury held shares shows they are tidying up all the loose ends to enable such. Personally, I think first return will be 6 months away (when some loans close), and certainly not before February as they will want, for cleanness, to issue the 4th 'variable' dividend first.
I hold 4 of your holdings (I can't buy MPLF for some reason), and have no concerns about any of them.
I share your optimism Damofari, I am now in Fair, Toro, MPLF and. Vtas as well as BGLF . I was expecting sone info from BGLF this month re pos. return of. capital.
Good luck fo. 2024
I see that buybacks in treasury have now reached 5% of issued shares, so half way there, and another year of buybacks to come.
And another 8c dividend.
And another enriching stress free boringly predictable year.
All hail FAIR, the gift that keeps on giving.
Agricore/gavster -NBC;yes I noticed the low NAV discount, and whilst not sure what has caused such (buybacks/less 'risky' investments/realisation share cancelling ) not concerned remotely. If it gets to par, that will end the 50% investment mgr rebate and the buybacks.
I agree with you Agricore on DEC - when I think about my retirement, I work backwards. What do I want/need, where am I know, and what do I need to do to get to that point. I long ago worked DEC backwards, looking at a given lifetime production (based on no new wells), a capping cost of $35k a well, retiring all debt, and paying the current dividend. I got to about 2035, not the duration DEC suggests. But then, conservatively, 12 years at an 8% yield would give you your capital back, and leave you with a capping business, which frankly I think is actually the £500m freebie that oakbloke refers too. That they won't cap all their wells in 12 years is irrelevant, that they will have the accrued funds to do so isn't. If DEC metamorphosises into the pre eminent well capping business, of which there is a shortage of trained operatives (making $2k a well) and you have a company not only with a mkt cap potential greater than DEC, but in a more regulated/predictable business with truly positive environmental credentials that could be championed rather than lambasted. I do think holders are listening to the noise, not focusing on the numbers, but for me the numbers to look at in the next accounts, are the rates of ABS amortising - I believe they will continue to be over amortised and clear well before 2030, and then people can see the (free cashflow) money. I think DECs assumptions are overly optimistic, but I also think holder's fears that there won't be enough money are equally pessimistic.
Agricore;.on CGEO (and BGCO), your welcome. Glad to repay my thanks for your highlighting of AA4 which I bought a few weeks back.
CGEO and BGEO continue their slow and steady rise of late. Be interesting to see your take in due course, the former for me in the deep value camp, the latter, high yield.
Hi Damofarl, I'll definitely be including CGEO in my Top 20. Thank you for mentioning this one.
Hi Gavster, I think speaking to a percentage decline with DEC kind of misses the underlying point. It's true the decline occurs in a steady state of around 10%. But that's not a 10% decline of the resource. It's a 10% decline in the current method to extract the resource. So if you factor in shut ins, work overs, compression, pumps and other techniques (and these are evolving year after year) then DEC have proven that 10% isn't a steady state - albeit there are costs to doing all of the above.
The better way to think of DEC is in terms of reserves and in terms of recognition of depletion. It's on the balance sheet and then it flows to the P&L as cost. On that basis the depletion is nowhere near 10%
If we take H1 2023 accounts, Natural gas and oil properties, net are $2,690m on the balance sheet and Depletion is $87.5m in the P&L. So one divided by the other that's 3.2% (per half year). And the numbers inverted show there are 15.5 years worth of production assuming a steady state. But of course the flow rates will decline which is how DEC arrive at the year 2095 for last production..... So I disagree they'll run out by 2030. Assuming of course the engineers reports are accurate (these are audited yearly) and that the depletion cannot accelerate between now and then. (Nice problem to have!)
I hope that helps explain anyway.
Https://www.fairoaksincome.com/~/media/Files/F/Fair-Oaks-IF/Fair%20Oaks%20Income%20Fund%20-%20Nov-23.pdf
Interesting to see the discount to NAV now only 5.86%. That is much reduced.
NAV return for the year 14.16%
Defaults are rising but the level remains manageable and below cushion.
Many thanks for that Gavster -NBC; my contrarian way has drawn me to it!
Hi Damofarl
I did hold HEFL, but I sold out with about a 2% profit around 300p, which took about a year.
I was attracted by the high yield and fund nature, as I'm sure you are aware but the SP and news was so sluggish. I hold another Henderson fund HHI and I'm very happy with that. TBH I didn't know enough about the downturn coming towards Asian markets so i was glad to be out and then watched the SP fall to the low 200s. Interestingly the chart looks similar to DEC, which back up the argument that the bears are firmly in control.
I wouldn't recommend, but of course if you can judge the bottom of that fall, then you'll be a winner.
Cheers
Gavster-nbc; aye, I was betwixt and between to you there! What I was trying to say was I don't think the declination rate is the cause (whether you think it's 10 or 4%), just a general down on oil/gas stocks. My personal view is that there isn't 30 years left, but easily enough to clear all debt/pay dividends until 2030.
Do I recall you hold HFEL, and if so, any views on it? Ta.
Yes, we do love the boring consistency of FAIR!
Hi Damofarl
Your answer pretty much completely agreed with me about the production declination being the cause of the constant sell down. Perhaps you misunderstood my point.
In your answer "Personally, I think beyond 2030 there will be little meaningful production but they don't need it (or new acquisitions) to cover the debts and duvets until then. "
Which is exactly what I mean by the decline in production. In fact if the rate of decline was their quoted rate of 10% there would be meaningful production in 2030, and the debt payments are possible (as my analysis worked out), but no meaningful production by 2030 implies a much higher rate of decline than their 10%.
I do agree that they may well cut and run at the end of it their production, but the rate of decline in production will signify when exactly that will be. The most optimistic 4% declination rate will keep DEC going for 25 years as an estimate.
It's an interesting speculation by the markets. Just a year ago all was sunny uplands with a high SP and shareholders not minding acquisitions by share issue. Now the idea of issuing shares at current prices is an extremely bad sentiment driver.
We'll see, there are some decent yields in Oil and Gas / Tobacco but not any that I can think of beyond 20% so I'm still optimistic about the stateside listing.
Other than that.. Looking forward to the FAIR dividend for DRIPS this Friday.
2 of 2; as fulfilling this more onerous inspection requirement. The EPA require physical inspection currently, and if they are successful, DEC won't be able to record as one of those recording requirements, when they where there anyway, couldn't be counted. One only has to think of the additional cost to DEC of say doubling physical inspections none of which could be offset by a routine be visit. But actually if DEC was smart that could do a Bloomberg on that, and make it a virtue,.by say aligning this more onerous inspection requirement dates with dates of plugging in the area. As for the debt thing, well the RCF was in my opinion a mistake, but on the plus side, their objective to clear ABSs by 2030 is 5 to 7 years earlier than the contratual requirements (which gives them headroom), but they are actually amortising it at a greater rate than their own 2030 projections. Personally, I think beyond 2030 there will be little meaningful production but they don't need it (or new acquisitions) to cover the debts and duvets until then. What I see, is in 2-3 years, the plugging company will be spin off as a stand alone entity, come 2030, DEC will cut and run, abandon the wells, and NewSpunOffPluggingCo will have a secure utility like cashflow for 30 years or more.
Agricore; hope you are well too! I do think you should revisit CGEO - it's major holding BGEO has been doing share buybacks for ages, causing cash to flow to CGEO as it has sold down to maintain it's stated % holding in BGEO - that flush of cash now seems to have metamorphosised into CGEO deploying it's own buybacks...is that like compounding on compounding?