TIDMHONY
RNS Number : 4890Q
Honeycomb Investment Trust PLC
28 October 2021
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28 October 2021
Honeycomb Investment Trust plc
Honeycomb Investment Trust plc (the "Company" or "Honeycomb")
announces that the Investment Manager's monthly factsheet for 30
September 2021 is now available on its website at
http://www.honeycombplc.com .
Net Asset Value per Share
The Company announces that its unaudited Net Asset Value ("NAV")
per share as at 30 September 2021 on a cum-income basis was 1,018.4
pence, based on a NAV of GBP359.1 million, and on an ex-income
basis was 1,017.9 pence, based on a NAV of GBP358.9 million. The
NAVs have been calculated by Apex Fund Services (UK) Ltd.
Honeycomb Investment Trust plc (the "Company" or "HONY")
delivered a NAV return of 0.66% for the month of September, or 8.0%
annualised. This completes a strong quarter for Honeycomb with a Q3
annualised NAV return of 8.3%.
Net Investment Assets decreased in the month by GBP30m from
GBP619.5m at the end of August to GBP589.2m at end of September,
predominantly driven by two repayments in the structured consumer
portfolio. The first was the repayment of a senior-secured facility
backed by unsecured consumer loans which has refinanced into a new
larger syndicated facility with Honeycomb participating but
resulted in net cash inflow, which will then draw again over the
coming months. The second was the GBP16m repayment in full of a
senior-secured credit cards facility at the end of its term.
The pipeline of new opportunities is strong with GBP500m of well
progressed deals including a number of upsizes to existing clients.
Total pipeline exceeds GBP1bn. The current pipeline has a strong
positive social and environmental impact focus, including five
transactions totalling c.GBP210m in the renewable / electric
mobility space, reflective of our continued focus on supporting
innovative lending partners who focus on lending in areas that will
accelerate environmental and social initiatives.
The net debt-to-equity in the month reduced to 63.4% from 69.8%
as reduction in Net Investment Assets facilitated a GBP12m
repayment of the main leverage facility and increase in cash
balance from GBP21m to GBP33m.
Market dynamics driving compelling investment opportunities
Non-bank lending is now an integral part of the lending
landscape, providing financing to millions, including those that
are underserved by high street banks.
The lending market has seen an increase in seasoned underwriters
and originators setting up specialised lending platforms, giving
customers access to a team of experts who maintain longstanding
relationships, execute and close quickly, and thus benefit from
repeat business.
We have seen first-hand the importance of deep sector expertise
to navigate the non-bank lending market, by building a network of
long-term industry relationships enabling a diverse and
differentiated deal flow. We recognise the importance of these
businesses and have focused our strategy on this growing market
through providing finance, typically on a senior secured basis.
Due to the fragmented nature of the market and the relationships
we build, most of our investments are sourced internally and
negotiated bi-laterally, with diligence and structuring done
in-house by our expert team creating high barriers to entry for
other capital providers and more sustainable risk and returns. We
believe that lenders often prefer to partner with a finance
provider that has deep expertise and industry knowledge and who has
demonstrated a commitment to the market through several cycles.
Our asset-based credit strategy provides finance to the
non-banks, predominantly on a senior basis, secured directly
against their loan portfolio with priority over the customer cash
flows. The diversification and granular nature of the underlying
loan portfolios provides significant risk protection meaning
predictable cashflows that support our loan repayments.
Fundamentally, our approach combines the structuring and credit
disciplines of Asset-Based Finance "ABF" with those of direct
lending. The loans are fully covenanted at asset performance and
corporate level and are structurally super-senior to the majority
of the business' operational expenses.
Whilst public securitisation may at times be used as a
comparable strategy versus our offering, from a risk reward
perspective it is worth highlighting some differentiating factors.
Our facilities are predominantly the most senior in the capital
structure, ensuring we receive 'the first dollar' of interest or
principal on any facility.
Negotiated bilaterally, we are able to precisely tailor our
facility with conservative leverage ratios that meet our detailed
macro- economic stress testing and we are able to ensure we
structure a comprehensive suite of covenants and have full recourse
to both the asset collateral as well as the issuing entity together
with parental guarantees if required.
On an on-going basis, through proprietary systems, we are able
to monitor cash collections on a daily basis, control underwriting
and adjust our facilities where necessary.
Topics on the horizon
There are a number of macroeconomic risks and concerns in the
market currently, and though some may only be transitory, it is
worthwhile highlighting a few that we are currently monitoring
closely. Overall, as we witnessed during the Covid pandemic, the
Honeycomb Investment Trust portfolio proved to be resilient through
the economic turmoil of 2020, and able to continue to collect cash
and pay dividends.
Looking ahead and towards 2021, the potential impact of
inflation across all sectors is worthy of note. On the Consumer
side, this could lead to borrowers' affordability worsening,
insofar as wage growth inflation outpaces price inflation, which
could lead to increasing arrears. We are mitigating this by
ensuring lenders affordability assessments are being updated to
reflect higher non-discretionary spending. We are also protected as
the underlying consumer loan pools are relatively short duration
and amortising so the portfolios turnover quickly.
For the SME portfolio, the impact of inflation is expected to be
minor given our SME exposure is predominantly backed by loans
benefiting from government guarantees (through the Coronavirus
Business Interruption Loans Scheme "CBILS" and the Recovery Loan
Scheme "RLS") or short duration working capital loans which provide
important protection against stress to the underlying borrowers due
to rises in operational costs resulting from wage inflation.
On the real estate side, inflationary pressures have grown as
supply restrictions imposed by Brexit and the coronavirus pandemic
has led to building material cost inflation, putting strain on the
construction industry both in the UK and across Europe. While this
inflation is likely to put pressure on development lending, we
expect the Honeycomb development portfolio (15% of Net Investment
Assets) to remain resilient to these factors, supported by robust
structural protections, the fixation of build costs upfront and
strong developer-supplier relationships. All development loans are
structured with a buffer in the loan amount to absorb cost overruns
(5% of build costs), beyond which this cost is borne by the first
loss equity, providing a strong buffer in the event of cost
overruns. Furthermore, over 50% of the development loans
collateralising our exposures relate to complete builds or builds
with fewer than 6 months remaining; for these most costs have
already been incurred or agreed. For the remaining portfolio, costs
are typically covered by fixed price contracts, preventing the
supply price inflation being passed through to the development
costs. In the rare occasion that costs are not subject to fixed
contracts, we have seen minimal passthrough of cost increases to
our development partners owing to their long-standing relationships
with suppliers.
Looking across to the Energy sector, we would highlight that we
have no direct exposure to conventional Energy backed assets, and
therefore we expect that the impact of price rises in this sector
to have limited impact to the portfolio performance.
At a macro level it seems clear that interest rate rises are now
on the horizon in both the short and medium term. Honeycomb is well
positioned with a good natural hedge of floating rate assets and
debt. In addition, the Honeycomb portfolio generates strong
cashflow distributions - approximately GBP290m in 2019 & 2020
and over GBP150m YTD in 2021. This allows us to reinvest the
Honeycomb portfolio at current market rates, as yields and returns
adjust accordingly.
Integral to our portfolio management approach is our on-going
detailed monitoring process, through our proprietary systems,
integrated into our lending partners, to provide us with live
performance updates. As we saw through 2020, this proactive and
rigorous approach to the Honeycomb portfolio holds us in good stead
as markets face uncertainty, and we believe the portfolio continues
to offer strong diversification with downside protection for our
shareholders.
As we now look ahead to the developing macroeconomic environment
post-Covid, we remain confident that our dedicated approach and
expert team are ever vigilant and prepared for the challenges and
opportunities to come.
For further information about this announcement please
contact:
Pollen Street Capital - Investment Manager
Matthew Potter / Julian Dale: +44 (0)20 3728 6750
Liberum Capital Limited - Joint Broker
Chris Clarke: +44 (0)20 3100 2000
Cenkos Securities plc - Joint Broker
Justin Zawoda-Martin: +44 (0)20 7397 8900
Link Company Matters Limited - Corporate Secretary
hitcosec@linkgroup.co.uk
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