Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
To provide investors with a high gross dividend yield and the potential for capital growth by investing predominantly in fixed interest securities.
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Premium is now 7.7% based on current buy price of 53.035p, paying 8.5%. There may be better value elsewhere .
TFIF is on a discount of around 2.2% paying 9.6%. SMIF also looks like better value.
Hi CaneToad, I can't shed any light on it but it might have been mentioned in the recent webinar.
GS
Anybody able to shed light on this loan facility which supposedly had been due to expire in Dec 2023...
I thought Franco presented well. The writeoff of CS and other bonds, without any major disaster to the fund shows the difficulty of credit analysis and the advantages of holding a diversified fund rather than picking out individual bonds yourself. The dividend history here is quite impressive and it's probably going to continue in my portfolio for the forseeable.
I have now had a chance to review the ShareSoc webinar. Franco does his best to liven it up at times, but if you’re struggling to sleep I’d recommend it! Anyway, my takeaways from it:
- Fund has mostly traded at a premium (~4%) to NAV throughout the year, only unsettled by market events when the share price moves but the NAV doesn’t have time to before the share price recovers. Hence a short-term discount to NAV. If people ever want to top up, look out for those opportunities!
- Pull to par opportunity of ~7% based on top 20 bonds held. In other words, barring “events”, the should be a modest increase in value there.
- Politics is what causes the losses (e.g. Credit Suisse where Swiss politicians decided to rewrite the rules about debt, or Raven in Russia where Putin’s invasion of Ukraine caused the investment loss). More political events could happen, we just don’t know.
- The fund has to invest at the more risky end of the market to generate the yield (we know that). But it also means the political events have more impact.
- QT means there are now a lot of sellers of government gilts and one big buyer. It should keep the prices high for a while. As everything is priced relative to government debt that should be good for bond values in the short to medium term (1-3 years I would say).
- Franco thinks we are basically at peak interest rates, and rates will fall. But unlikely to go back to the ULIR (my interpretation of his remarks). So there should remain opportunity to invest in bonds to keep the yield high. But I don’t expect anything other than 0.01p increases to the annual dividend.
- The 3.05pps reserve is there “to be used, not to be a badge”. So I am sure they will use it to keep the dividend where it is.
- REA should complete a disposal which will allow them to clear their arrears to pref shares. They need to do this before they can do other things they want, like pay an ordinary dividend.
- Franco hinting he might work for another 3 years to make it 50 years in the industry. What’s the succession plan?
NCYF is almost touching 50p. I don’t think I would add more at that price, but if it dropped to 47p I could be tempted for a buy and hold. And keep you’re eye open for a non-specific “political” issue that hits the share price but not the NAV.
Let luck be upon us!
In case you missed our webinar with CQS New City High Yield Fund Limited (NCYF), the recording can be found on our YouTube channel: https://youtu.be/UIemId4vPrE
What did folk think of the recent commentary on last year's results (12 months to 30 June 2023)? I read Franco's report with interest and, on the whole, it seemed a bit more upbeat.
- Called and maturing bonds being replaced at higher coupons (due to higher interest rate environment).
- EPS boosted by late payment of REA from year before.
- 4.51pps slightly above dividend (4.49pps) but includes above late REA payment.
- Matalan and Credit Suisse bonds written to zero after they hit trouble (combined 1.5% hit to NAV).
- More opportunities to invest at better coupons now that the ULIR environment is behind us (for now at least).
- But falling interest rates should raise bond prices over the next few years. Share price should improve but more pressure on the dividend cover I guess.
- Frequent mention of the increasing dividend history and the 3pps reserve. So I'd imagine we should expect more of the same (i.e. 3 x 1.00p, then 1.50p for the final payment).
- Yield is around 9.5% currently even if the dividend barely changes.
Did anyone attend the webinar? Any feedback on it and overall level of confidence?
Guitarsolo
ShareSoc Webinar with CQS New City High Yield Fund Limited (NCYF) 23/11/23 3pm. Caroline Hitch (Chair) and Ian “Franco” Francis (Investment Manager) will present a full overview of the company and will give an update on current performance and future plans. Registration: https://bit.ly/3sk7S6C
Clearly a falling knife, think I would wait before buying this one. Maybe next year a buy in point.
Now yielding over 10% along with a lot of other stuff, but this still look attractive within a well-diversified portfolio. I'm expecting rates to continue marching upwards and if so, this is likely to continue falling, giving the opportunity to achieve an even higher yield.
As ridiculous as it seems, this dropped to 22.9p back in March 2020 so it's anybody's guess how low it could go this time...
Dividend of 1.49p declared (1.48p 2022). Total of 4.49p for the year, (near enough 10%) but discount has evaporated.
Thanks hghotshot a lot tob think about there ,will see how things transpire .
Interest rates rise, bonds and preference shares fall. Even the safest prefs such as GACA have been falling consistently in this time. It's that simple...
Hello Actuary, yes I am aware of the fall in NAV around March time. It was my understanding that a default/failure of the nature you describe requires reporting? I can see no evidence (RNS) of any such reporting. Do you have any evidence of any such failure or default? My feeling was that the NAV decline was occasioned by the interest rate expectations rather than the result of the crystallisation of specific losses on investments.
Hello hghotshot,
This is all true, but there was also an abrupt fall in NAV (of about 2p) in March which I suspect was a loan default. There needs to be more transparency on defaults given that it's the only real risk (apart from inflation).
John, I believe there have been two factors at work here which have caused the share price fall of 20.8% from 56p in November 2021 to the current offer price of 44.37p. Most significantly, the NAV has been hit by the rising interest rates. The Official Bank Rate has risen from 0.1% in November 2021 to the current level of 5%. This fall in NAV is regrettable but a normal response; as interest rates go up, NAV will go down (from around 53p in November 2021 to the current level of 45.55p) being a decline of 13.3% on the November 2021 share price. Sadly, there has been another significant change which I am unable to explain. Historically, these shares have (nearly) always traded at a premium of around 5% and as much as 10%. They are now trading at a discount of 2.6% ( based on NAV of 45.55p and offer price of 44.37p). This change from premium to discount explains around 7.5% of the total decline in share price of 20.8% from around 56p in November 2021 to the current offer price of 44.37p. I cannot explain this reversal in sentiment towards the shares but fervently hope that it reverses. I have held them for many years.
This share has been slìpping of late ,anyone know of a specific reason or just the general trend of the markets at the moment
This can be bought for 44.95p now; a discount of 1.96%. This looks like good value to me as it is very rare for this to trade at a discount. It normally trades at a premium of between 5% to 10%. Unless, I am missing something?
The premium of almost 10% on NAV is a worry to me. Time to look elsewhere, I think?
From 28th Feb: "So I would say that means they expect earnings will not be fully covered, possibly for a few years, but they will use the reserve fund to keep increasing the final Q4 dividend by the minimum amount of 0.01p. And then they will say; but we've increased the dividend every year!"
Turned out to be spot on! Not a hard prediction though.
I await Franco's commentary at end August/early Sept (?) to see (i) how much they had to dip into reserves to cover the dividend and (ii) what the outlook is like.
Bottom line is that capital is depreciating and dividend increases are way behind inflation having increased by 0.01pps in each of the last four years. It's all very well saying "we've increased the dividend every year" but when it is by that amount you know if has only been done to be able to make that claim and should therefore be challenged as to its actual benefit to anyone.
Still holding but would like to hear the prognosis from the horse's mouth.
Guitarsolo
Exactly correct . Difficult to match the yield in any other stock so clearly risks as always . The mechanism you describe is accurate and the defensive reserves of investment trusts are what we investment trust fans have always emphasised in our choices . I am a big investor here and will stay put or even accumulate on downtrends
Well, the 6-month update is in. Overall, the situation is much as-you-were. It's not bad, but it's not great either. Firstly, the actual figures:
"For the six months to 31 December 2021 the revenue account earnings per share were 2.09p compared to 2.12p for the same period last year." As I said, not bad but not great either.
What's been happening? Well, as we knew, many of the bonds were being called whilst rates were low and being refinanced:
"Typically, this means that the higher yielding bond is "called" by the relevant company and replaced with a lower yielding instrument. For New City High Yield this means that we can get a capital uplift as the bond is repaid at a higher price but means that we have to replace the yield as the new instrument normally has a much lower interest rate."
We knew that was happening, but still a problem if inflation swings wildly up and wildly down. It would be nice if some of the refinancing occurred when it was favorable to NCYF (and us!).
But on the most important subject of dividends:
"As things stand, the Board expects to follow the same pattern of dividend payments as declared last year and maintain or slightly increase the total level of dividends for the year. Based on an annual rate of 4.47 pence and a share price of 55.4 pence at the time of writing, this represents a dividend yield of 8.07%. Should earnings fall below the anticipated annual dividend amount, the Board is prepared to use a modest amount of reserves to make up a marginal shortfall and believes that this will be the most likely scenario for the next few years. The Board pays great attention to dividend payments, receiving regular feedback from shareholders on their importance. Since its launch in 2007, the level of dividends paid by the Company has increased every year."
So I would say that means they expect earnings will not be fully covered, possibly for a few years, but they will use the reserve fund to keep increasing the final Q4 dividend by the minimum amount of 0.01p. And then they will say; but we've increased the dividend every year!
Overall, dividends have only risen by just over 1% over the last 4 years when I suspect cumulative inflation is over 10%. So in real terms, it is dropping. But the dividend yield is still high I guess. Hard to replace from anywhere else.
Guitarsolo - still holding
Hi Mr Solo, on the litigation front I meant more directly than holding the shares of an IT. I've dabbled with investing directly into to the litigation process. Well, the special vehicles set up to provide a corporate curtain and fund individual cases.
Usually as part of that process you get an external "valuation/risk reward" advice and look to see what the insurers are offering as way of cover in case the case is lost. After that, it applying some commercial judgement, DD and common sense, a well as a big dose of risk evaluations.
If it helps, there appear an growing interest from the US over VOD and it's done a recent deal with Elon Musk's satellite business if you believe the speculation and some media reported wins in health care. The recent digital conference material is interesting. It's on VOD's site.
The 400%! I was mildly disappointed with that, but in the context over present markets, I can't complain.
Interesting times at VSL. There could be more down the track with that particular little win, it's moved up sharply, the US listed vehicle and I wouldn't be surprised if it runs further, that could benefit VSL more over the short term, but I guess they have some form of lock-in that doesn't allow them to exit any time soon.
"The Company's Class A Common Stock shall be subject to a one-year post-closing lockup unless otherwise accelerated based on average trading performance measured six months post-closing."
Hi Devon, well there's a lot in that post! To answer a couple of points you raised:
- Litigation funding. I have dabbled in here before with the likes of Juridica Investments (got it, got out for small profit!). I've also looked into Manolete Partners but it was too expensive for the potential returns. If you can live with the idea of actually encouraging lawyers to pursue claims (!) then it's an area of interest. But I don't quite know how to assess value etc.
- Vodafone! I have some of these in my mother-in-law's account! They're way underwater but I see quite a lot of research that suggests the future cost of infrastructure investment will begin to wane (pipe dream!). But such a big beast has to come good eventually. I just wish they had lower debt.
Rea: Thanks for confirming you think it is the same coupon. If that has been paid to NCYF post results it would bring the 4.18pps report up closer to the dividend. I'll hope that was a factor why they felt OK to keep the dividend going.
Other: Impressed by your 400%!
All the best,
Guitarsolo (stuck in East Devon!)
https://production-matalanlive-assets.s3-eu-west-1.amazonaws.com/uploads/asset_file/asset_file/362063/1634312978.9171162-Matalan_Q2_FY22_Press_Release_Final.pdf
Matalan update.
"I mentioned in last year's report that the most notable investment negatively affected by COVID-19 issues was Matalan Finance where the company was badly affected by the lockdown and its bond price fell to 41 as at the end of June 2020. We believe that this security will recover, have remained holders throughout the year and have seen the bond price recover to 60 at our year end. "
Senior is close to par @95%
Second Lien @65% c30 YTM