Listed managed investments - KKC announces boost to FY24 distribution and BTI benefits from company acquisitions

July 04, 2023 12:23

Independent Investment Research

It was a relatively light month for news in the LMI market in June, as is often the case leading into earnings season. However, there were a few key new items that caught our attention, including:

Rob Luciano Taking a Break: On 8 June 2023, VGI Partners Global Investments Limited (ASX: VG1) announced that the Portfolio Manager, Rob Luciano, will be taking a three-month sabbatical. Marco Anselmi and Simon Birrell will maintain the day-to-day responsibilities of the portfolio in Rob’s absence, with oversight from the CIO of Regal Funds Management, Philip King. The sabbatical comes after the completion of the merger between VGI Partners and Regal Funds Management, and with Rob feeling comfortable with the operational and investment support provided by the Regal team. The VG1 portfolio has performed better in CY23 so far, with the NTA (including dividends) increasing 18.1% over the five months to 31 May 2023. But the performance of the portfolio has been disappointing since the Company listed with the NTA at May-end below the NTA at listing.

MEC Exploring Options to Narrow the Discount: On 28 June 2023, Morphic Ethical Equities Fund Limited (ASX: MEC) stipulated in a letter to shareholders that “the Board is monitoring the discount to NTA and is exploring a range of other options that could potentially deliver a return that is closer to NTA.” The statement comes in response to feedback from shareholders regarding the discount and portfolio performance. To date, MEC has sought to address the discount through the following initiatives:

Increasing the size and frequency of dividends with a DRP;
Increasing the marketing and reporting of the performance of the portfolio in order to grow the Company and keep shareholders informed; and
Implementing a share buy-back. MEC has bought back 645,573 shares.

The Company intends to provide regular updates to the market regarding its strategy to manage the discount as the process unfolds.

KKC Announces Substantial Increase to Target Distribution: On 27 June 2023, KKR Credit Income Fund (ASX: KKC) announced a target distribution for the FY24 period of 1.67 cents per unit per month (a total of 20 cents per unit). The target distribution represents a 52% increase from the current monthly distribution of 1.09 cents per unit. The increased target distribution reflects the increased yields and credit spreads in global credit markets
expected by the Manager combined with the cessation of the buy-back program and the redistribution of income to unitholders. The uplift in the distribution represents an attractive distribution yield of 10.7% based on the unit price as at 27 June 2023. After buying

back over $100m in KKC units, IIR views the reallocation of this income as distributions to unitholders as a significant positive for investors.

BTI Benefits from Investment Company Acquisitions: Bailador Technology Investments Limited (ASX: BTI) announced the acquisition of two of the companies in the portfolio in June.:

Rezdy entered into an agreement to sell the business to a US Private Equity Fund. The transaction was completed in June and resulted in a 46% uplift in the valuation of the company. BTI elected to roll 100% of its investment into the acquisition vehicle and has invested an additional $2.5 million in the vehicle. BTI first invested $2.5 million in Rezdy in October 2015, with a total of $12.6 million invested including the latest follow on investment of $2.5 million.
The Company exited its investment in InstantScripts after shareholders accepted the sale of the company to Australian Pharmaceutical Industries Pty Ltd, a wholly-owned subsidiary of Wesfarmers Limited. The transaction has resulted in BTI being expected to realise $52 million cash from the transaction. The sale price represented a 25% increase in the carrying value of the investment. The sale is subject to final completion adjustments and is anticipated to be completed in early July.

EAFZ Commences Trading: During the month, the Ellerston Asian Growth Fund (Hedge Fund) (ASX:EAZF), commenced trading with 18.05 million units on issue. EAFZ was created to address the lack of liquidity and other structural issues experienced by Ellerston Asia Investments Limited (ASX: EAI) with the conversion of EAI into an ETMF structure providing investors a structure that trades closer to the value of the portfolio and that is capable of growing given the open-ended structure of an ETMF. 14,998,520 EAFZ securities were issued to EAI shareholders.

PGG Delisting Approved by ASX: As we detailed in our last monthly update, Partners Group Global Income Fund (ASX: PGG) is seeking to delist from the ASX and continue to operate the fund as an unlisted unit trust. During the month, PGG received formal approval from the ASX for the trust to delist, subject to unitholder approval. An Extraordinary General Meeting is scheduled for 2 August 2023, with the last day of trading expected to be 17 November 2023 in the event the proposal is approved. PGG is providing unitholders plenty of time to exit their investment in the event they do not wish to remain a unitholder in the unlisted structure.

For all the latest monthly news and data, see the attached report.