TOL - 11th Nov, 2024
Third LIC/LIT coming to market for 2024
Below we take a look at the key news items and announcements during October, which included the commencement of trading of MRE and a new LIC coming to market. In the attached monthly update, we also take a look at the state of play of premiums/discounts across a range of categories, with the current environment providing a number of attractive opportunities for investors to potentially enhance returns.
Whitefield Bringing a Dividend Harvesting Strategy to Market
Whitefield Income Limited (expected ASX code: WHI) has lodged a Prospectus with ASIC. The Company is seeking to raise up to $200 million (before oversubscriptions) through the issue of up to 160 million shares at $1.25 per share. The capital raised will be systematically invested in a portfolio of Australian equities, predominantly from the S&P/ASX 300 Index. The Company’s objective is to generate regular distributable income including franking credits and deliver a total return similar to or higher than the benchmark index (S&P/ASX 300 Equal Weighted Franking Credit Adjusted Daily Tax-Exempt Total Return Index) over rolling three year periods.
The portfolio will be managed by Whitefield Capital Management Pty Ltd. The Manager has a long history with LICs, managing the portfolio for Whitefield Industrials Limited (ASX: WHF), one of the oldest LICs on the ASX.
The Company will employ a dividend harvesting strategy to maximise the income generated by the portfolio. The investment process is largely quantitative based using the proprietary models developed by the Manager. The portfolio will be diversified, typically comprising 70-100 securities. The portfolio will increase exposure to select securities during the dividend/distribution payment periods with any residual portfolio value invested in securities from the investment universe. This will result in significant turnover in the portfolio. The strategy seeks to be largely exposed to the market at all times with a small amount of cash held for liquidity purposes. The Company seeks to pay dividends monthly, franked to the maximum extent possible, with the payment of dividends expected to commence after the first full calendar quarter of operations.
The strategy is a new offering for the Manager, however the Manager has built up a track record in an unlisted fund that implemented the strategy using seed capital invested by the senior executives of the Manager. While a different structure to the LIC, the unlisted fund was managed in a largely similar manner as the portfolio for the LIC will be managed providing some empirical performance for the strategy. The Manager is paying for the costs associated with the Offer, which means the NTA at the date of listing will be the same as the Offer Price of $1.25 per share.
The product is targeted towards retirees with the fully franked monthly dividend objective. The Company will be seeking to pay a base grossed-up dividend yield of 8%p.a. (net yield of 5.6%p.a.) over the long-term, plus top up/special dividends where available. The base yield would provide an above-market yield for investors. We note that the dividend yield objective is a target and may not be achieved by the Company. While the product is targeted towards retirees, an investment in the Company may appeal to other investors with the strategy offering a differentiated risk/return profile to the broader domestic market given the benchmark index is an equal weighted index. As such the portfolio provides a different level of exposure to companies in the market cap weighted index with equal exposure to both small and large cap stocks. With a maximum investment in a dividend harvest security of 4% of the portfolio value and an average security exposure of approximately 1.5%, the portfolio is significantly less concentrated to individual securities than the market cap weighted index in which the top 50 account for over 70% of the index. The portfolio will be largely exposed to the market at all times, therefore will have equity market volatility.
There are currently two other listed managed investments (LMIs) on the ASX that provide exposure to a dividend harvesting strategy; Plato Income Maximiser Limited (ASX: PL8), and BetaShares Australian Dividend Harvester Fund (ASX: HVST). PL8 is structured as a listed investment company (LIC) while HVST is structured as an exchange traded managed fund (ASX: ETMF). One of the benefits of a LIC structure for this strategy is that the LIC pays tax which can be passed onto shareholders through franked dividends. The equal weighted benchmark means the Company will provide a differentiated exposure to the other two vehicles. Like it’s counterpart PL8, the primary method of access to the strategy will be through the LIC which is expected to underpin demand for the shares. The continued premium to NTA that PL8 trades at suggests there is market demand for strategies that deliver an enhanced yield without giving up market returns.
Metrics Real Estate Multi-Strategy Fund (ASX: MRE) Commences Trading
During the month, MRE commenced trading on the ASX. MRE is the third LIT in the Metrics stable. The Fund raised $302.8 million through the issue of 151.4 million stapled securities at an issue price of $2.00 per stapled security. The Fund declared a monthly distribution of 0.63 cents per security to be paid on 8 November 2024.
As we discussed in the LMI Monthly Update published on 6 September 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 debt 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.
Given the target subscription amount of $300 million was 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%. 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).
Gryphon Capital Income Trust Raises $167.8 million
On 8 October 2024, Gryphon Capital Income Trust (ASX: GCI) announced a Non-Renounceable Entitlement Offer and Shortfall Offer. The Entitlement Offer provided eligible unitholders the ability to invest in 1 new unit for every 4 units held at a price of $2.00 per unit. The Entitlement Offer included an oversubscription facility and any new units not subscribed for to be offered to new wholesale investors under the Shortfall Offer.
The Offer closed on 28 October 2024. The Offer was fully subscribed with the Trust raising $167.8 million issuing 83.89 million new units. This included 32 million to existing unitholders with the remainder issued to wholesale investors under the Shortfall Offer. The new units issued increases the number of units on issue to over 400 million units and increases the market cap of the Trust to ~$850 million.
Compulsory Acquisition of Zeta Resources Shares
On 10 October 2024, Zeta Resources Limited (ASX: ZER) announced that the major shareholder of the Company, UIL Limited, exercised its right to compulsory acquire all shares in the Company. Share were acquired at a price of $0.2973 per share, which was above the price of $0.22 per share prior to the announcement.
Following the compulsory acquisition ZER shares were suspended from trading.
NAC Asks Investors to Shake Off Poor Performance and Tip in More
Naos Ex-50 Opportunities Company Limited (ASX: NAC) announced a Share Purchase Plan (SPP) Offer during the month, with the Offer capped at $5 million. Shares under the Offer will be issued at $0.45 per share, which was the pre-tax NTA of the Company as at 30 September 2024 and represented as 9.1% discount to the share price at the date prior to the announcement. The SPP Offer opened on 16 October 2024 and was scheduled to close on 5 November 2024.
The proceeds will be used to invest in undervalued Australian emerging companies. Issuing additional shares is a bold move by the Company given the NTA (after tax on realised gains and before tax on unrealised gains) has fallen by over 50% over the 12-months to 30 September 2024 with long-term investors now in a losing position. The Manager is seeking to raise capital to take advantage of what it believes will be a rotation into emerging companies. Watching further dilution of the share price for non-participating investors may be a hard pill to swallow.
WHFPB Converting into WHF Shares at Upcoming Reset Date
Whitefield Industrials Limited (ASX: WHF) has announced that the Company will not be resetting the Convertible Resettable Preference Shares (ASX: WHFPB) at the upcoming reset date on 30 November 2024. All WHFPB securities will be converted into WHF shares at the reset date.
WHFPB holders may sell their shares on market prior to the last trading day (26 November 2024) if they do not want to convert to WHF shares. WHF is currently conducting an on-market buy-back of the shares to facilitate this process.
WHFPB shares will be converted into an equivalent market value of WHF shares after allowing for a conversion discount of 2%, based on the VWAP of WHF shares on the 10 business days prior to the reset date. WHFPB holders will be entitled to the dividend for the 6 months to 30 November 2024.
MFF to Acquire Montaka Global
MFF Capital Investments Limited (ASX: MFF) has announced that it is seeking to acquire Montaka Global Investments to expand its research team and capabilities. Montaka Global is a global fund manager with ~$260 million of FUM across three main funds, including two ETMFs.
Under MFF’s ownership, Montaka’s primary focus will be its research and portfolio management systems and processes to target long term results for unitholders in the funds it manages. Montaka’s existing senior investment team of Andy Macken, Chris Demasi and Amit Nath will continue in their respective roles as CIO/Portfolio Manager, Portfolio Manager and Director of Research at Montaka Global. All staff will be retained by Montaka Global and its funds will operate independently of MFF, which will continue to be managed by its existing portfolio manager.
MFF intends to acquire the Montaka Global businesses, on an effective debt free basis, for nominal consideration from vendors being Mackay family interests and Montaka Global staff interests. The acquisition is scheduled to be completed in early 2025, subject to final binding agreements and customary preconditions. MFF expects to add to Montaka Global’s administrative teams over time and free up some of the investment professionals’ time. The financial impact of the acquisition on MFF is expected to be immaterial at Montaka Global’s current scale.
NSC to Refinance Wholesale Notes
Naos Small Cap Opportunities Company Limited (ASX: NSC) announced that it is seeking to refinance the unsecured notes currently outstanding. There are currently $32.2 million notes on issue that had a 5-year term and an interest entitlement of 4.95%p.a, paid semi-annually. The notes are due for repayment on 3 December 2024.
The Company will provide further details once the refinancing has been finalised. Refinancing of the notes is imperative given the Company had a market cap of $62.7 million as at 30 September 2024. A concern is that the interest obligations will be significantly higher than the current obligations.
CAM Raises $4.3 million through SPP
During the month, Clime Capital Limited (ASX: CAM) completed the Share Purchase Plan (SPP). The Company raised $4.3 million through the SPP, issuing 5.3 million new shares. The new shares will be entitled to the September quarter dividend of 1.35 cents per share, fully franked.
The proceeds of the SPP will be invested in accordance with the Company’s investment strategy in order to deliver on the Company’s investment objectives of above market returns and fully franked dividend yields higher than can be achieved by investing in the broader ASX.
BTI Sells Down Portion of SiteMinder Stake and Makes Follow-On Investments
Bailador Technology Limited (ASX: BTI) announced that it had realised a portion of its investment in SiteMinder Limited (ASX: SDR). The Company realised $20 million through the sale of shares at an average price of $6.65 per share, 5.2% above BTI’s previous carrying value. BTI was an investor in SiteMinder prior to its listing. The realisation represents a multiple of 27.8x the cost of investment. BTI has retained 82% of its holding in SiteMinder with a 4.9% interest in shares on issue. Paul Wilson remains on the Board of SiteMinder.
BTI also announced that it had made a follow-on investment in Rosterfy and DASH Technology Group.
The investment of $3.0 million in Rosterfy resulted in a 14% uplift to the Rosterfy valuation. BTI had an existing investment of $12.4 million in Rosterfy. BTI stated that Rosterfy’s revenue has continued to grow rapidly year-on-year and the business has now powered over 100 million volunteer hours across 3 million users in 35 countries.
BTI also made a $10 million follow-on investment in DASH. The investment is structured as a $5 million equity investment and $5 million debt facility. The carrying value of the investment will be increased to $25 million. BTI’s investment will be utilised by DASH to fund its acquisition of Integrated Portfolio Solutions Pty Ltd (IPS). IPS was established in 2012 and administers over $10 billion of investment portfolios. IPS’s unique combination of technology and service removes the burden of portfolio administration and reporting as a ‘whole-of-wealth’ non-custodial platform. IPS currently serves investment advisers, family offices, financial planners, and ultra-high-net-worth clients.
Russell Higgins Retires From ALI and ARG Boards
Argo Investments Limited (ASX: ARG) and Argo Global Listed Infrastructure Limited (ASX: ALI) announced the retirement of Russell Higgins from the respective Boards during the month.
Mr. Higgins had been on the Board of ARG since 2011 and has been the Chair since July 2018. Peter Wayne, a Non-Executive Director since 2022, has been appointed as the Chair, effective 1 January 2025.
Mr. Higgins had been on the Board of ALI since July 2018 and will retire effective 31 December 2024. Peter Wayne will take Mr. Higgins role as Chair, effective 1 January 2024. Mr. Wayne has been a Non-Executive Director on the ALI Board since 2022.
LRT Raises $5.7 million through Placement & Announces SPP
On 18 October 2024, Lowell Resources Fund (ASX: LRT) announced a Placement to wholesale and sophisticated investors and a Security Purchase Plan (SPP). The Fund raised $5.7 million through the Placement. 39.8 million new units were issued through the Placement at $1.10 per unit, which represented a 15.1% discount to the trading price prior to the announcement.
Units in the SPP will also be issued at $1.10 per unit with unitholders able to invest up to $30,000 in new units. The SPP will be capped at $2 million. The SPP is scheduled to close on 21 November 2024.
Capital raised from the Placement and SPP will be invested in line with the investment mandate. A portion of the capital raised is expected to be invested in Koonenberry Gold Limited (ASX: KNB), with KNB announcing that it had received a commitment from LRT in its $4.5 million placement. The capital raising by KNB is to support the acquisition of assets.
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