We would love to hear your thoughts about our site and services, please take our survey here.
The reason is not simply discount rates; it is because 30% of the portfolio is 'equity-like' (with this portion being within the renewables exposure) - confirmed by IR. I'm happy with the risk/reward here though and will probably take a small position at some point.
@Agricore: We're both just guessing, but whether it's 9% or 11% makes no significant difference to valuation/risk. Anyway, as mentioned, I think the retail bond is manageable, due to its modest size and the cash position as you mention. The LTV is an issue though; it only has to rise a similar amount to what it already has and they will be forced to start offloading assets. We're only guessing if that will happen - but with rates forecast to continue rising, it's definitely possible.
On the other hand, I think there is value here and I'll probably take a modest position here at some point.
I've spent some more time looking at this. There are many positives, but the following two serious risks:
- The LTV has risen from 42% to 50% over the full year with covenants at 60%. Presumably they need to start selling assets into a depressed market if/when they approach this figure. That's going to further reduce earnings and require a cut to the divi.
- The unsecured 4.5% bond will likely need 10+% to refinance in Aug 2024. This on its own would add another £2.75m to interest costs, but looks manageable by a 10% rebase of the divi and doesn't overly concern me.
It could still attractive if you factor in a 25% cut to the divi.
This is beginning to look attractive even with the four problem loans at zero and a rebasing of the divi by 20%, giving a 8% yield? Granted, it could go a lot lower. Though all assumes that the credit analysis was done properly on the remainder of the portfolio...
@Terry: If only the directors had a crystal ball 1y back to see the copper/zinc price trajectory and the direction of the world economy. It's easy to comment from the sideline. I don't see that any mistake has been made. They're in a solid position, waiting in the wings for asset prices to drop and scoop one up. Yes, they would have (potentially) had to raise less as a percent of mkt cap, but the asset would have cost more.
"Central Asian metals needs another asset!"
There's no hurry. They're debt-free and Kounrad will continue to be profitable down to very low prices; it's one of the cheapest operators on the planet. At the point at which they switch to being unprofitable, most (90%) of other operators will have already ceased and gone bust. They also now have a stronger positino with the banks, having quickly paid off their last loan. They're now in a much stronger position than they were before buying Sasa.
I have no exposure here... I always look at technicals + fundamentals before buying.
Issuing more shares in order to buy a good, accretive asset at the low of a cycle is not a bad thing. Some here are confusing it with emergency raises that (most) AIM companies do for working capital. CAML is not in that position. That said, I'm not holding or buying yet - I need a bigger safety of margin.
It is also not obvious to me at all how electricity prices feed into the fair value of those bonds in such a big way, unless they are very complex hybrid instruments; in which case, this is a more complicated and much riskier investment than it seems.
"Good assessment Trot. Although, thing I can't understand is SP seems to have inverse relationship with interest rates. "
That is exactly my question. If interest income has not dropped, are we meant to believe that the huge reduction in profit (from 108m -> 25m) is due to the change in the fair value of bonds under IFRS? That is a huge drop. It's not completely obvious and needs explanation before this becomes a no-brainer.
Clearly I am not understanding the nature of the underlying assets here. For a bond fund, the only way for profit to drop by this magnitude (from 108m -> 25m) would be if the value of the bonds themselves crashed by a similar amount OR if they defaulted or otherwise stopped paying coupons. I doubt that either has happened.
Given that this is primarily a debt fund, I cannot yet get my head around the enormous dependence on electricity prices. Bonds simply do not move in this way:
"Profit for the period of £25.8 million (31 March 2022: £108.9 million) primarily reflects the impact of lower electricity prices compared to the prior period."
No other bond funds that I hold see this dependence on the underlying businesses. That is their attraction...