August has a bit of everything for LMIs
There was plenty happening in August with a flurry of results being released. Below provides some of the key news items and announcements during August, which included increases to dividend guidance, capital raisings, structural reviews and a new LIT. We will provide a comprehensive review of the FY24 results in due course.
AUI Signals Ongoing Special Dividend
AUI reported its FY24 results on 15 August 2024. As was expected, revenue and earnings was down 9.4% and 12.9%, respectively, on the prior year due to lower dividends from its resource and energy holdings. The Company declared a final dividend of 28 cents per share, fully franked, comprising an ordinary dividend of 20 cents per share and a special dividend of 8 cents per share. This takes the full year dividend for the FY24 period to 45 cents per share, fully franked, up from 37 cents per share in FY23.
This is first special dividend paid in the Company’s history and will be sourced from retained earnings which comprise special dividends received from its investments over a number of years.
The Company has flagged that it intends to pay a special dividend of an equivalent amount for the next five years, in the absence of unforeseen events. The payment of a special dividend provides the Company a way to distribute some of the retained earnings and franking credits accumulated over time.
As at 30 June 2024, AUI had over 3 years of dividend coverage at an annual dividend of 45 cents per share in the retained earnings. Given the NPAT often covers the dividend payment the Company does has sufficient reserves for the ongoing special dividend. Income would have to decline sharply for consecutive years for the Company to eat through its reserves. With regards to the franking account, after the payment of the final dividend, the Company has more than 1 year of fully franked dividend coverage without the accumulation of additional franking credits. The Company generates its franking credits from both taxes paid and franked dividends/distributions received from the investments in the portfolio.
The full year dividend of 45 cents per share represents a dividend yield of 4.3% (6.1% grossed-up) based on the share price of $10.47 as at 31 July 2024. The inclusion of the special dividend provides a more attractive yield proposition than some of its direct peers and the S&P/ASX 200 Index.
WAR Takes Cash from QVE Acquisition
In July, WAM Leaders Limited (ASX: WLE) completed the acquisition of QV Equities Limited (ASX: QVE). WAM Strategic Value Limited (ASX: WAR) had a substantial shareholding in QVE of 14.9%. QVE shareholders were given the option of WLE scrip or cash as consideration for their shares. WAR opted to exit its holding in QVE receiving cash consideration for its holding. This has bolstered the cash position of WAR providing it with the ability to take advantage of new opportunities.
WHF Considering Increase to Dividends
Whitefield Industrials Limited (ASX: WHF) had its AGM during the month. Its focus on industrials saw the Company’s EPS increase 10% in the FY24 period. As previously reported, the Company declared a dividend of 10.25 cents per share, fully franked, taking the full year dividend to 20.5 cents per share, fully franked. The Company has maintained a semi-annual dividend of 10.25 cents per share since the final dividend for the FY19 period with the Company maintaining or increasing the annual dividend in every year since listing.
The Company stated that it is considering increases to the dividend subject to a further leg of sustainable income growth from the portfolio of investments and dependent on market conditions. The Board has always ensured that increases to the dividend will be sustainable for the long-term and we expect this time to be no different.
WQG Lifts June Quarter Dividend and FY25 Dividend Guidance
WCM Global Growth Limited (ASX: WQG) reported its FY24 results on 15 August 2024. NPAT was up 21.9% on the pcp to $45.3 million, driven primarily by the increase in the value of the portfolio, which returned 25.6% over the 12-months to 30 June 2024. The Company had previously advised a June quarter dividend of 1.76 cents per share, however due to the portfolio performance the Company increased the June quarter dividend to 1.81 cents per share, fully franked.
The portfolio performance has also resulted in the Company revising its FY25 dividend guidance with the Company intending to pay a full year dividend of 7.49 cents per share for the FY25 period. This represents a 7.8% increase on the FY24 full year dividend of 6.95 cents per share.
WQG was trading at a double-digit discount to NTA as at 31 July 2024. We view the discount to provide an attractive entry point for the Company that has delivered strong returns and provides an attractive grossed-up dividend yield for a global equity portfolio.
PGF Pays Increased Final Dividend and Increases Dividend Guidance
PM Capital Global Opportunities Fund Limited (ASX: PGF) reported its FY24 results on 8 August 2024. Net revenue from ordinary activities was down 0.42% on the pcp to $195.98 million and NPAT was down 0.98% on the pcp to $125.53 million.
The Company declared a final dividend of 5.5 cents per share, fully franked, above the dividend guidance of 5 cents per share. The full year dividend of 10.5 cents per share represented a yield of 4.95% on the NTA (after tax on realised gains) as at 30 June 2024.
The strong performance of the portfolio in recent years has resulted in the Company increasing dividend guidance for FY25 to 11 cents per share, fully franked. The Company has a healthy level of dividend coverage through its retained profits and profits reserve.
In July, the Company announced its was seeking to raise $120 million through a Placement to wholesale investors and a Share Purchase Plan (SPP). The Company raised $135 million through the Placement and $16 million through the SPP for a total of $151 million. New shares were issued at a price of $2.19 per share, which represented the NTA at the time of the announcement of the capital raising. 68.8 million new shares have been issued through the Placement and SPP with the Company now having 478.4 million shares on issue and a market cap in excess of $1 billion as at the date of this report.
Metrics Raising Capital for a Third LIT
Metrics is raising capital for what will be their third LIT. The Metrics Real Estate Multi-Strategy Fund (ASX: MRE) is a stapled structure consisting of Metrics Real Estate Passive Trust and Metrics Real Estate Multi-Strategy Active Trust. Metrics is seeking to raise $300 million through the issue of 150 million stapled units at $2.00 per unit.
The Offer is scheduled to open on 10 September 2024 and close on 25 September 2024 with units scheduled to commence trading on the ASX on 16 October 2024.
The Fund is designed to provide broad exposure to commercial real estate (CRE) investments in Australia and New Zealand, with the ability to invest in Developed Asia. The objective of the Fund is to provide income, preserve capital with the potential for equity upside with the portfolio investing across the capital structure, including senior loans, mezzanine dent and equity instruments. The Fund has a total target return of 10%-12% p.a, net of management fees and expenses, through the economic cycle.
Following the completion of the Offer, the Fund’s capital will initially be invested 50% to the Passive Trust and 50% to the Active Trust. These allocations may change over time at the discretion of the Manager.
The Passive and Active Trusts will invest in Sub-Trusts being the Metrics CRE Multi-Strategy (Debt) Trust and the Metrics CRE Multi-Strategy (Equity Trust). The Sub-Trusts will invest in and alongside two wholesale funds being the MCP Real Estate Debt Fund (REDF) and the Metrics Real Estate Equity Opportunities Fund (MREPIIM). An overview of the structure of the Fund is provided below.
The Passive Trust will be principally exposed to loans, however may also provide investors exposure to other financial instruments (including equity) in certain situations while the Active Trust will provide exposure to debt and equity instruments.
The Passive Trust is expected to qualify as an AMIT and therefore returns will flow through the Passive Trust and be subject to tax by unitholders. The Active Trust is expected to be a public trading trust and taxed as a company with the Active Trust paying tax on taxable income and then paying distributions which may be franked. As such, distributions received by the Fund may be partially franked.
The fees charged by the Manager will be influenced by the amount of capital raised. If the target subscription of $300 million is raised the fees and costs of the Fund, which include management fees, responsible entity fees and direct and indirect costs, is expected to be 1.29% of the Fund’s NAV for the first 12-months from the commencement of trading on the ASX. Following this period, the fees are expected to be 1.54%. If the minimum subscription amount is raised these fees will be 1.71% of the Fund’s NAV for the first 12-months and 1.96% for the period after this. The Manager is also eligible for a performance fee of 15.38% of the Fund’s returns above the Hurdle Rate of 10% p.a. (net of fees).
TGF Taking Another Look at the Structure
Tribeca Global Natural Resources Limited (ASX: TGF) reported its FY24 results on 27 August 2024. In its results, the Company acknowledged the continued discount to NTA and announced that the Board has initiated a process to consider the merits of the LIC structure versus other structures.
This suggests the Board is considering restructuring the Company as a listed or unlisted trust to provide shareholder’s the opportunity to exit at NTA. The response from the market has been muted with the Company continuing to trade at a discount to pre-tax NTA of ~20% at the date of this report based on the most recent NTA release. We attribute this to a level of uncertainty with regards to the outcome of the review given the Board conducted a review last year and it was determined that the available options were either infeasible and/or a prohibitive cost to shareholders. The Chair highlighted in the AGM address in November 2023 that TGF’s portfolio includes assets that do not offer daily liquidity and therefore an ETMF option was not available. This suggests that if the Company were to move forward with a structural change it would likely be as an unlisted trust.
RYD Completes Strategic Review
Ryder Capital Limited (ASX: RYD) has completed the strategic review that was announced at the AGM in 2023. The Board have recommended no action be taken with regards to the structure.
The review considered a range of restructuring options but it was determined that the restructure options reviewed were not going to adequately address the dual issues of the NTA discount and liquidity whilst imposing uncertainty, opportunity and tangible costs. The reasons provided for the decision were the restructure options considered were unable to:
- clearly demonstrate improvement to these dual issues while not compromising the portfolio performance;
- not materially impact the Manager’s time, focus and energy in delivering improved performance; and
- be carried out without incurring substantial professional fees, tax consequences and other expenses.
The Board noted that the Company invests in a concentrated portfolio which includes a number of strategic shareholdings in smaller companies with limited liquidity, which would likely make an ETMF structure not an available option given the need for daily liquidity in an ETMF structure.
The decision also took into consideration the strong performance in the FY24 period, with gross portfolio performance of 27.1% and an increase in NTA (after tax on realised gains and before tax on unrealised gains) of 17%. The strong portfolio performance saw the Company declare a final dividend of 5 cents per share, fully franked.
Despite the recommendation for no change, the Board stated that it will continue to explore viable restructure options while implementing a more active capital management program to assist in improving the discount and overall market liquidity.
BTI Invests in Hapana Holdings Pty Ltd
Bailador Technology Investments Limited (ASX: BTI) continued to deploy cash in new opportunities in August with an investment in Hapana Holdings Pty Ltd. Hapana is an end-to-end software platform focused on the fitness and wellness sector. The software is used by gyms and boutique fitness studios to manage classes, client memberships and billings, marketing, digital content, and monitor business performance in real-time. Hapana delivers these features via a mobile app that allows gyms and boutique fitness studios to better engage and communicate with their members.
BTI invested $7.7 million in Hapana alongside OIF Ventures who invested $9.6 million. The funds will be used to accelerate investment in product development, expand the onboarding and operations teams, and support continued growth in international markets.
The investment in Hapana follows the $20 million investment in DASH announced in July. At 31 July 2024, BTI had $52 million net cash placing the Company in a strong position to make additional investments.
GCI Updates Investment Guidelines
On 4 September 2024, Gryphon Capital Income Trust (ASX: GCI) announced an update to the investment guidelines, effective from 16 September 2024. The Trust has increased the maximum weighting to ABS from 40% to 50% with exposure to RMBS now to be between 50% to 100%.
At least 50% of the portfolio will continue to be invested in Investment Grade assets, however the maximum exposure to Non-Investment Grade ABS has increased from 15% to 25%.
The changes to the guidelines to reflect the changes in the market with ABS now making up a larger portion of the securitised market with the Trust is designed to be representative of the market.
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The views here are not recommendations and should not be considered as investment advice.
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