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I couldn't have put it better myself, SageofLondon. It is difficult not to assume they overexposed the company to the forex contracts to see if they could make quick/effortless returns from Euro appreciation. Why else would they have an exposure to forex that significantly outweighed the value of (USD denominated) pipeline asset disposals?
And here we are, waiting to hear what the extent of the gambling has been. Could it be £200m, £300m or £400m?? We don't know, because they don't want to inform the extent of their ineptitude. But at some point the information will have to come out, one way or another. I sense it is not going to be pretty!
EUR 60m of outflows due to currency hedging contracts is unforgivable. That's more than 10% of the current market cap - last time I looked we weren't an FX trading operation, rather a PE Group that owned real businesses with tangible value. I also agree that nothing is said about whether further outflows could occur, presumably there is therefore the potential for this. Given the dollar has strengthened considerably against the Euro and £, these were likely designed to hedge disposals / dividends received in dollars that were potentially worth less due to dollar depreciation against Euros mainly - but management must have had an approximate idea of how much they needed to hedge - that is an awful lot of outflow due to currency contract exposure, given the size of the portfolio to me.
I believe my pessimism to be appropriate, Guitar Solo. When a listed company makes a negative announcement, but fails to provide any context or meaningful detail i.e. deliberate obfuscation, there is worse to come.
Well I hope for both our sakes your pessimism is misplaced! But it is a natural reaction to poor communication by PEY (i.e. people think the worst), not to mention poor management to allow this.
Questions to ask too of the Nomad and whoever is providing the (independent) monthly NAV figures.
I believe It will get worse than this, Guitar Solo. 6 Euros per share by the end of the week, is my guess. It is pointless for me to sell now. I will hold in the small hope that I am wrong, and they can turn the situation round.
It is a pretty appaling day. PEY need to come out with a clear explanation of the amount and dates of their hedged contracts. If they don't, the market will speculate for the worst.
Management's reputation is sorely damaged by this.
Did the end-Sept NAV (Eur 14.27, a 1% rise) include the cost of the hedging? Did it all go wrong in October only?
Thank you for your comments, Guitarsolo. As we know, the currency hedging is in place to ensure that asset sales in USD can be converted to Euros at a known exchange rate, which can give a degree of certainty as to the Euro value of any disposals. Princess reports its income in Euros.
However, as Partners Group will know, currency hedging for future assets sales doesn't work if there are no assets sales! All that is left is a currency contract with a positive or negative value, totally dependent on the vagaries of currency markets. To my mind this is unforgivable. They knew that private equity deal activity was slowing down some time ago. They are paid to manage such risks or at least advise investors of any possible future risks, and I see no evidence of this in the annual and interim reports.
This could be just the beginning of the value destruction, as the announcement today does not give any detail on how much currency in total has been hedged, and the maturity date/s on the contract/s. If the currency contracts are huge, and margin calls cannot be fulfilled, the forex counterparties will become unobliging creditors to Princess, and it could be "goodbye and goodnight". Similar happened to Alpha Pyrenees Property Trust, where the (mis)managers wiped out the business with big forex bets that went against them.
Make no mistake, we are in the danger zone here.
I am not sure we have enough detail Damien. I'm no expert about hedging but the principle is supposed to be to balance your performance. So if a currency movement is detrimental to you, you have a hedge that is beneficial, and vice-versa. The reference to liquidity being the issue (i.e. cash), and the movement largely in one direction of the dollar over the last 6 months, suggests they have had to put up the cash they would use for the divi to meet the hedge contracts. That could work the other way as well, which might be why they have suspended the dividend rather than scrapping it.
But I take your point (and agree) that there is a natural balanced hedge because of the geographical split. Has someone at Princess tried to be too clever? We will be left in the dark until the BoD give us some more details.
I'm ****** off as much as anyone as, whilst I was calculating the impact of a divi reduction based on 5% of falling NAV, I wasn't expecting this!
Guitarsolo
Ultimately the board has approved currency hedging to gamble with other people's money, in the hope of making effortless returns. There was no need to hedge currency because of the geographical spread of the underlying companies. 36.4% of the value is in Europe and 50.9% in North America, so the "hedge" was already a natural part of the portfolio. Why take the risk?
The dollar has appreciated significantly against the Euro, and it looks like currency forward contracts have come to the end of their term, meaning real and serious losses. It's difficult to tell without more detail on the currency exposure and the nature of the contracts. They have been very good at keeping it out of focus, and I didn't see much about it in the annual report either.
All in all, pretty disgusted. And, of course, they take their fees whatever happens to us. They win, we lose.
sdfs
"Guernsey, 02 November 2022
Guidance on second interim dividend for FY 2022
The Board of Directors of Princess Private Equity Holding Limited ("Princess" or "the Company") today announces the suspension of the second interim dividend for the 2022 financial year.
This suspension has been deemed necessary in light principally of the significant reduction in the Company's liquidity due to the strengthening of the US Dollar against the Euro, which led to outflows of more than EUR 60 million year-to-date to settle currency hedging contracts. In addition, challenging debt markets are currently limiting the facilitation of asset sales across the industry.
It is important to note that the Company has sufficient liquidity to meet its commitments with a cash position including liquid senior loans of EUR 59.8 million at 31 October 2022.
The Board will continue to monitor the Company's liquidity and ability to pay dividends in the future in line with the previous guidance and will keep shareholders informed in a timely manner."
OK, this is not good and is damaging to the reputation of the board. The dollar strength may be outside of their control (but the hedging isn't), but in terms of managing the situation it is poor to reach a position where they are suspending the H2 dividend entirely. Meeting the hedging contracts has obviously sucked up too much of the cash they have to also meet the dividend, and the usual churn of assets to release cash obviously isn't as easy at the moment. I am disappointed though that they haven't been able to dial this out to some extent and mitigate their liquidity. Perhaps we will receive more explanation soon.
On the more positive side, NAV increased at the end of Sept to EUR 14.27. Still down on the year, but at least it is ticking up slightly. Looking for a silver lining as well, the H2 dividend is suspended, not cancelled. But PEY's board will need to do better to repair their reputation.
And as PCPunter says, I really hate the rather obvious large trades recently. It's so obvious that the big boys share priviledged information (which IS illegal!) and the private investor is screwed over.
Guitarsolo
Definitely something very insider traderish about those big sales yesterday. As always small holders getting screwed.
Very dissatisfied.... And poorer
"Princess Private Equity Holding Limited's ("Princess" or the "Company") net asset value decreased by 5.8% to EUR 13.76 per share"That's a big fall! Especially as it comes on the back of decreases in 7 of the last 8 months as well. I couldn't see any commentary about it from PEY but note there is a presentation coming up. But we're now 1.62 euros below the year-end closing NAV so I think it is going to take quite a good H2 to avoid a dividend being cut (if they use the same criteria as published before). I'd like to see an explanation from PEY to see if this is just short term fluctuations or something more concerning.
Dividend at 0.38 x 2 , making a return of 6.28% at today's price.
OK, so the March NAV increased 1.7% to EUR 15.26, thereby arresting four months of decline at least. I guess we've grown used to a rising NAV over the last 2 years, but I'm pleased to see the increase and hope it continues, not least because the December NAV sets the dividend for the following year. PEY used to give itself some leeway around this (with a plan to pay out between 5-8% of the NAV but usually towards the lower end). But now it's quite clearly stated as 5% of the December NAV so it's all important.
Guitasolo - slightly happier!
Slightly disappointed to note NAV falling for four months in a row now. End of Feb 22 NAV published at EUR 15.00 when I recall at the end of Oct 21 it was EUR 15.77 (its peak). So that's a fall of 5.13%. I don't know of anything specific or to worry about, but just in general it's the opposite of the trend we have seen for a while - albeit only a short trend of 4 months.
Still, it will take a little getting back so it would be nice to have a few positive months here and there, if nothing else to ensure the year end NAV is at least the same as Dec 21 (EUR 15.38). Don't want to see that dividend falling!
Guitarsolo
More weakness, more purchases for me, I reckon the 2022 yield at today's price being 5.98%
I concur Bluemango, 76.3c it should be.
Sterling has strengthened a wee bit over the last 12 months and at say 1.20 that'll be 63.6p for those of us in the UK. Perhaps the last couple of months' small NAV decreases and the GBP/EUR rate has taken a bit of shine off, but you can't knock 14% increases over a large portfolio.
Attention will turn to how they can do during 2022. More of the same please!
Guitarsolo
Yes, with a current discount of about 15.5%.
I make the target dividend 0.763 EUR which would represent a near 14% increase on last year, and a 5.87% yield on current price. Anyone concur?
I would say that now represents a point of weakness in the share price. I'm In for another 227 !
Based on annual dividend payment being a target 5% of opening NAV, last stated NAV was 15.38 EUR giving approx 0.77 EUR dividend for 2022 (assuming no further change in NAV in December). In two equal payments of around 0.385 EUR. This would be an attractive forward yield of 5.47%.
Bless the Gods of Opportunity, any weakness in PEY(S) price has to be considered as a buying opportunity.
NAV now up to 15.433 Euro and director purchases today. Maybe the discount will close a bit. Plus the Solid Divi of course. Looking good at the moment.
NAV at the end of June now EUR 15.24! A stonking 16% increase in the first six months. Assuming they stick to the 5% of NAV as the dividend, next year's divi will be another nice increase. We'll have to see what happens in H2.
Guitarsolo