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Any suggestions why the price has been dropping whilst the nav has been rising?
I did wonder if there was something I missed but the nav increase over the past week continued the previous trend - it is up 1p over two weeks
It's passible that there is just more concern about future defaults but on the flip side higher for longer interest rates will give a higher fund yield.
We are not far off going ex-div so it is an unusual time for a 'random' drop, the traded volume has not changed much either.
They have corrected the PY on the factsheet- now a far more respectful 11.29%!
PY was 9% in the May factsheet, rather surprised it was this low given it was over 11% in April and the nav/sp have not moved by more than 1p.
Bit behind you reading the Portfolio and Market Update (why LSE can't re-produce the RNS is beyond me; I've asked them to "fix" it on sevreal occasions but to no avail). You've beaten me to the punch with regard to the market yield (my back of a B&H packet calculations weren't that far off the mark after all) and given the current expectation that there might be up to three more interest rate rises in 2023 and no falls, a yield of in excess of 11.5% for FY24 is prospectively on the cards.
Not showing here -it is more extensive but key highlights below-
On 13 April 2023 the Board of TwentyFour Income Fund Limited ("TFIF" or the "Company") announced its highest ever quarterly dividend of 4.46p which resulted in a record full year (to 31 March 2023) dividend total of 9.46p. This is an increase of 2.69p from the 6.77p dividend total paid out in the previous year. The Company's long-term floating rate investment strategy has reaped the benefit of a year of consistent interest rate increases by the Bank of England, which contributed to the significant jump in income and was further supplemented by the investment decisions made by the Portfolio Manager.
In the Company's financial year to 31 March 2022 the average SONIA rate was just 0.14% The average for the 2022/23 financial year jumped to 2.26%; an increase of 2.12%. As the Company's portfolio consists of floating rate securities, all hedged to sterling, this additional 2.12% of income formed the basis of the increased dividend.
The additional income during the financial year has primarily been the result of the Portfolio Manager's reinvestments of bond repayments as well as the investment of share issuance proceeds at higher yields. While the UK may be approaching a peak in rates for this cycle, the 10.1% inflation print for the 12 months to March 2023 was higher than expected and may put pressure on the Bank of England to further increase interest rates, from the current 4.25%. Market expectations are for a further two or three more 0.25% hikes and no cuts in 2023 implying that interest rates will stay elevated for longer.
Monthly factsheet for March just out-
PY is now 11.27% with an MtM of 14.96% and a Wal of 3.4years (on a share price of 100.5p).
So for a similar share price to the previous month the PY has increased by over 1%
It will also depend on the default levels. There is enough margin for these to increase and for us still to have a good return; if the recession does turn out to be shallow and defaults don't get too high then the rewards could, as you indicate, be to the upside.
Given the step change in rates that occurred in the latter half of FY23, I don't think it unreasonable to expect that we should see some "lag" benefit in the first half of FY24 (assuming rates stay at or above current levels) and, on the presumption that they do, indeed, distribute all of their net income (as they state), that would suggest (by my calculations) that they might be able to pay out c11p+ for FY24 if there is no significant reduction in rates over the next 12 months. Perhaps, as you suggest, that might imply that they don't include the leverage element in the headline purchase yield.
By my (rough) calculations, if there is no change in rates in H1 FY24 then net income in H1 FY24 could be expected to be up to c30% higher compared to H1 FY23 (on a LFL basis) and we could see a further increase in the interim dividends from Q2 onwards to (say) 2.25p. Interesting times
I don't know, I am sure that they will have traded some of the portfolio over a turbulent past year but how this has impacted on the distributable income figure is hard to gauge.
As I understand it the repo borrowing is essentially gearing so perhaps that cost them in the falling market but has now enhanced income as things have reversed? Bips treats the leverage element outside of the stated headline purchase yield, perhaps TFIF does the same.?
Monks, Something isn't adding up. The more I look at it, the more surprised I am at the level of dividend for FY23 compared to FY22. TFIF supposedly distributes all of its surplus income after costs. As far as I'm aware, but stand to be corrected if I'm wrong, income for this purposes does not include any realised profits/(losses) from gilt sales. The FY22 dividend looks low compared to the FY22 purchase yield given that there was little or no interest rate volatility during FY22. Likewise the FY23 dividend looks high compared to the FY23 purchase yield given that there was a lot of interest rate rate volatility and that most of that volatility occurred in the latter half of FY 22 (there would have a lag effect on income). Did the mini-budget fiasco allow them to make some additional, one-off, non-recurring income?
At the end of Feb (when the nav was 100.2) the purchase yield was 9.93%, the MtM was 14.46% and the wal was 3.3years. I am also looking at 9-10 p divi (depending on interest rate changes over the year) with a 12 % capital gain over the next three years.
For anybody interested, my starting point was to calculate the average NAV ex-dividend for FY22 which I estimated to be c110.55p (based on the average of the NAVs announced at 31/03/21 and 31/03/22 respectively after adjusting for the final dividends). I could have used the share price instead but wanted to eliminate any discount/premium. I then took the FY22 dividend of 6.77p and divided it by 110.55p to give an effective annual return of c6.12% (which I rounded down to 6%). A bit rough and ready but not likely to be a million miles off the mark.
Just done some back of the B&H packet calculations. I estimate that at the start of FY23, TFIF was earning a net monthly return of c0.5% (c6% per annum) and that by the end of FY23 its net monthly return had increased to c0.79% (c9.5% per annum). Also, based on some rudimentary estimates, I reckon that TFIF's effective net return for FY23 was c7.65% i.e. if there was no change in the base rate for the next 12 months then TFIF might be expected to pay out c11.75p in dividends for FY24 (9.46p x 9.5%/7.65%)! Being a bit more conservative and assuming that the base rate more or less plateaus for the next 6 months and then starts to (gently) decline by (say) 0.5% over the next 6 months, then I reckon TFIF could be expected to make a net effective return of c9.3% for FY24 and pay out c11.5p. At the moment I'm pencilling in a (conservative) return of at least 10p into my dividend forecasts; the base rate would have to drop quite dramatically from here to expect less and all the current indications are that the base rate won't be tumbling any time soon.
This takes it to 9.46p for the year which is just over a 9% yield at todays purchase price.
More than I was expecting but it does explain the large share issuance.
I appreciate that it gives liquidity, but personally I think that they do it more to increase the aum which increases revenue to the company ...
If they issued them after the ex-divi date then there would be less dilution of the revenue account. I cannot remember which IT is was, but I do remember the manager stating they had a policy of not issuing new shares too near the ex divi date for this reason.
It is rather minor and certainly does not change my opinion of investing here but if the demand is strong why not issue at a 4-5% premium which would definitely mean it was of benefit to existing holders?
I will quiz them at the next opportunity.
Monk, Aren't you overlooking the fact that they have issued the shares to invest the proceeds and generate more income; it doesn't therefore necessarily follow that the EPS will be reduced. The fact that they are issuing shares suggests that they can see opportunities to invest and generate income in excess of their current weighted average return
Surely the EPS will effectively decrease by 1.2%? Also, in addition to the dilution effect there will be brokerage fees for the sales but also for the purchasing of new assets with the money raised.
I have listened to the manager of NCYF say that it dilutes existing holders if issuance is at much less than 5% premium.
' Considerable care is taken not to dilute the revenue account, and
the manager wants to be sure that any new issuance can cover itself in terms of
revenue income generated until the next ex-dividend date. It would appear that the
board is open to providing liquidity to the market at the 5% to 6% premium level'
I know that many IT's issue at around 2% but I am still to be convinced that it is for the benefit of existing holders, especially as in this case when it is so close to a significant ex-divi date.
Monk, I think you are missing something (perhaps). The declared NAV as at 6 April was 101.25p (cum dividend) and the 9.2m new shares have been issued today at 103.28p. After the issue of the new shares, the revised NAV as of today (assuming no change in the previous NAV during the interim) would be 101.276p (cum dividend) i.e. existing shareholders would only (theoretically) be worse off if the increase in NAV during the interim plus the costs and expenses of the new share issue exceed c£187k. That said, unless they use part of the proceeds raised to proportionally increase the dividend pot that would otherwise have been paid out prior to the issue then shareholders will receive a slightly lower dividend per share than they would have done otherwise e.g. if they were originally planning to pay out (say) 3p per share then they'd have to add £276k to the dividend pot. Have existing shareholders lost out by receiving less dividends per share? In theory not; it's just a case that the NAV (ex dividend) would be slightly higher than it would otherwise have been.
I still think that we will receive a minimum of 3p per share (i.e. there's enough surplus income already in the distribiution pot to pay the enlarged shareholder roll at least 3p per share without having to add any of the proceeds raised to cover a shortfall - otherwise their declaration in February looks misplaced) but that any extra, over and above that amount, that might otherwise have been distributed to us prior to the new issue will now be reduced by between c0.04p (assuming 3p per share is now paid) and c0.05p per share (assuming 4p per share is now paid). Hardly earth shattering.
I think the c£187k certainly ought to be enough to cover the costs and expenses of the new issue but I'm none the wiser as to whether the NAV has risen or fallen in the interim. You'd like to think that the issue price was computed based on either today's or yesterday's NAV plus the expected costs and expenses (such that existing shareholders were no better or worse off after the issue) but that's probably a pipe dream (I suspect that at best the costs and expenses will have been factored in).
My original post should have said ex-div on 20 April (not payment).
I'm sure that the price will drop ex-div but I'd be surprised if it's by the full dividend amount. The dividend payout arguably should have little or no impact on NAV over time as we see the unwind of the discount to par value of the underlying bonds.
When the share went ex-div on Thurs, 20-Oct the price dropped from 96p to 95.6p (the close on Weds, 19-Oct compared to the close on Thurs, 20-Oct) and if you look at the price at the start of the week compared to the end of the week there was actually no movement at all (the price was 94.6p at the close on Fri, 14-Oct and at the close on Fri, 21-Oct). No change on the week plus a 1.75p dividend into the bargain but, if you'd bought on Thurs, 12-Oct when the dividend was declared, the price would have been up 0.2p (comparing the price at the close on Thurs, 13-Oct to the price at the close on Fri, 21-Oct)
On the other hand, when the share went ex-div on Thurs, 19-Jan the price dropped from 99.8p to 99p (the close on Weds, 18-Jan compared to the close on Thurs, 19-Jan) and if you look at the price at the start of the week compared to the end of the week there was 2p fall (the price was 100p at the close on Fri, 13-Jan and 98p at the close on Fri, 20-Jan). 2p down on the week against a 1.75p dividend but, if you'd bought on Thurs, 12-Jan when the dividend was declared, the price would only have been 1.2p down (comparing the price at the close on Thurs, 12-Jan to the price at the close on Fri, 20-Jan).
There's no hard and fast rule but, if the last two dividends are anything to go by, buying tomorrow, when the dividend is declared, should mean that you are up on the transaction when the share goes ex-div, all other things being equal.
Unless I am missing something then the answer is no!
9.2M shares at a 2p premium- difference between latest nav and issue price -(assuming no costs ) benefits existing holders by £184,000.
if the div payment is 3p/share for 718M shares that is around £21,5M in total, so a 1.2% dilution of this (9.2M/718M) is £258,000 and this does not take into account dilution of any other reserves.
Beyond the extra liquidity for the company to purchase new investments it is hard to see that there is anything but a loss for existing holders when we are so close the the ex divi date.
(and they still have over 30M left under their latest block listing)
There certainly is a strong demand, they issued 9.2M share today to try to keep a cap on the price.
I do wonder whether the premium they are issued at this near to the ex div date is ever enough to compensate existing holders for the dilution in reserves especially after taking into account broker costs etc
Am expecting a dividend announcement either today or tomorrow pm for payment on 20 April. Based on the RNS issued on 24 February announing an increase in the minimum annual dividend, I am expecting a minimum dividend of 3p (making 8p in total for the year ended 31 March 2023).
Nav up 1.5p in the week to now sit at 100.9.
Over the past year they have been reducing their holding of CMBS, one of the current areas of greatest concern, they now only hold 5% in this class in TFIF.
Nav now heading back up and is 99.4p .
This has come through the turmoil of the banking upsets quite well with the nav only dropping about 1p. With the recent further 0.25% on base rates in the UK and 0.5% in the EU it has plenty of potential for returns provided the defaults do not ramp up too high.