This investment trust focused on making and taking on debt-based investments in UK infrastructure. Their portfolio includes private and public borrowers working on projects like transport, renewable energy, housing and more.
Not doing particularly well at the moment.
Trading below its NAV a rarity for this investment trust.
Looks like it has a few defaults although i doubt it will lose much if anything. Even a loan to bulb has been partially paid back by the Liquidator. Decent dividend but expect no increases…unless they can charge higher interest in the future (average length of loan 4.5 years). Also some loans are index linked. Also nav has not increased by meaningful amount over 5 years nor should you expect it to. It does normally trade at significant premium to its NAV.
So no increse in Dividends or NAV for years.
Buy if you want a decent dividend and a reliable payer.
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I was wondering why they’re at such a discount to asset value and why their performance is so poor in recent years. but I assume it may be largely down to the issues you pointed out around defaults and loans.
If you’re looking for reliable dividend payers, are other infrastructure trusts not a better option?
Hi @Eden sorry for not getting back quicker.
This the AIC infrastructure section.
https://www.theaic.co.uk/aic/find-compare-investment-companies?sec=INF&sortid=Name&desc=false
As you can see most but not all are on a premium. Which implies but doesn’t guarantee low risk.
Sequoia is dire on total returns.
Sequoia appears (i haven’t checked fully) to be the only one who doesn’t own any assets. It just lends to Infrastructure projects.
On that basis it could be just as easily in the debt-direct lending section of AIC.
https://www.theaic.co.uk/aic/find-compare-investment-companies?sec=DDL&sortid=Name&desc=false
As you can see they are all on discounts some on very large discounts.
In reference to the defaults, for instance bulb is 1.5% of portfolio but not 1.5% of NAV. These 3 defaults will have been devalued in the NAV.
In reference to the potash mine. Potash price are on a 13 year high and i would assume they will get all there money back.
Note i bought during the crash at slightly below the present price and i was on a 30% profit at one time. If you are looking for a reliable dividend it has achieved that over its 5 year life.
Company statement this month
"Despite the volatility experienced over the year, SEQI achieved its target of paying a fully cash‑covered dividend of 6.25p per Ordinary Share. It plans to hold the payout at its current level, notwithstanding that its interest income is increasing and it expects a further strengthening in the dividend cash cover ratio.
The company said against the backdrop of rising interest rates across the yield curve, particularly over the final quarter of the financial year, that this is a solid performance, having outperformed the liquid credit markets and now experiencing a pick up in income on its floating rate assets.
Chair’s outlook:
We are taking full account of the risks – and opportunities – that higher inflation may present. In general, a moderate amount of inflation is helpful for the credit quality of the companies that we lend to. This is because in many cases these companies are able to increase their revenues more or less in line with inflation, while their debts remain the same in nominal terms. In other words, inflation reduces the real amount of leverage that our borrowers have. There, however, is a risk, currently exacerbated by high energy prices and the ongoing consequences of Russia’s invasion of Ukraine, that central banks decide to address inflation aggressively, reducing growth in the economy or even triggering a recession and a period of stagflation.
While we do not welcome recessionary pressures in any of the countries where we hold investments, the resilience of our borrowers to recession is one of the most important factors that our Investment Adviser evaluates in its loan assessment processes.
We are also mindful that interest rates are increasing and are likely to continue to do so. As noted above, an increase in short-term interest rates is positive for the portfolio, given the high level of floating rate debt held. While increases in longer-term interest rates are likely to have the effect of temporarily decreasing NAV, since the values of fixed-rate loans decline, they too should eventually be positive for the Company, since reinvestment opportunities will offer higher interest rates, and prices of existing fixed-rate loans will pull to par as they get closer to maturity. We therefore believe that overall the portfolio is well positioned for an increasing interest rate environment."
Share price is recovering.
Was!
The loan to the potash company has been paid back but not in full.
Sequoia is taking a share of the profits instead.
Sequoia is now in buy back mode.
Sequoia model is to borrow money on revolving credit. Reasonable interest in the past as in sub 3%. Lending at around 8% plus.
The loan facility was upto 250 million. They only pay interest on what they borrow.
This meant they reduced or even removed money drag. Any capital returned could be used on a new loan combined with some of the borrowing.
Once they had used up the borrowing facility they would issue new shares slightly above the share price for new buyers, mainly institutes and slightly below for Present shareholders. The aim was to get bigger and bigger so they didn’t have to share loans with other companies. Basically cherry pick the best loans.
Not possible now due to the share price being less than the NAV.
So buy backs and cancellation till the share price is greater than NAV or/and the market perks up.
The market will not easy forgive the 3 defaults.
Seems to be holding up today.
Just
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