Australian Listed Investment Company Report October 2023

This story features MAGELLAN GLOBAL FUND, and other companies. For more info SHARE ANALYSIS: MGF

Download related file: IIR-Monthly-LMI-Update_-4-October-2023

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market. Also known as Listed Investment Trusts or Listed Managed Investments.

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LMI Market News

Pressure Mounts on MGF

The pressure is mounting on Magellan Global Fund ((MGF)) [not to be confused with Magellan Financial Group ((MFG))] to close the discount, with an article in the Australian Financial Review on 19 September 2023 suggesting that Nick Bolten is seeking to garner support for a unitholder meeting to put forward a resolution that requires the redemption of units at net asset value (NAV). We note that Nick Bolten reportedly holds a large number of MGF options, which are set to expire on 1 March 2024.

So let’s talk about the options…..The options were issued in March 2021, as part of a Bonus Options issue and through the Partnership Offer. A total of 1,068.66 million options were issued with the options due to expire on 1 March 2024. The options have an exercise price set at a -7.5% discount to the prevailing NAV at the time of exercise. The options can be exercised at any time up until the expiry date at which time any unexercised options will lapse. To be in-the-money, the market price of MGF needs to be trading at a discount of less than 7.5% to NAV. The Fund has traded at a discount in excess of -7.5% for the majority of the term of the options which has seen the options be out-of-the-money for a large portion of the time on issue and has resulted in very few options being exercised.

So what would be the potential outcome if there was a successful resolution for the Fund to redeem units at NAV? It would be expected that the market price of MGF would re-rate towards the NAV providing an opportunity for the options to be trading in-the-money and the potential for a capital gain to be made from the difference between the option price and the prevailing NAV.

Normally the exercise of options would be dilutive to unitholders given the discount at which the options are exercised, however the Manager will bear the economic cost of the discount so unitholders of the Fund do not experience dilution from the exercise of options. This liability is something that the Manager will be very cognisant of and will no doubt impact the decision making of the Manager and the Responsible Entity, both of which fall under the Magellan Asset Management umbrella.

Regal Resources Royalties Fund Seeks to Raise Capital for Transactions

During the month, the Regal Resources Royalties Fund [unlisted] announced it was seeking to raise capital to fund an investment with a Canadian royalty company. The transaction will comprise an acquisition of a royalty over one of Canada’s largest gold mines and an equity investment in the Canadian royalty company, which will provide exposure to an existing royalty portfolio. The Fund also highlighted a pipeline of investment opportunities for the Fund.

Regal Investment Fund ((RF1)) had a 19% exposure to the Regal Resources Royalties Fund as at 31 August 2023. IIR views the diversification of the portfolio as a positive for the Regal Resources Royalties Fund as it diversifies the portfolio from both an investment and commodity perspective. We view this as beneficial to RF1 investors who have a significant exposure to the fund. RF1 can have an allocation of up to 25% in the strategy, as such there is potential for RF1 to participate in the capital raising, however this will be at the discretion of the Investment Committee for RF1.

BKI Completes Acquisition of Unlisted Investment Company

During the month, BKI Investment Company Limited ((BKI)) announced it had completed the acquisition of an unlisted investment company with net assets of ~$15.7 million. Consideration for the acquisition was 8.88 million new BKI shares which were issued at a price of $1.76 per share, totalling $15.6m million. The Company has 802.8 million shares on issue post the issue of the new shares for the acquisition.

CAM Announces Share Purchase Plan

On 15 September 2023, Clime Capital Limited ((CAM)) announced a Share Purchase Plan (SPP) offering eligible shareholders the opportunity to acquire up to $30,000 of CAM shares at a fixed price of $0.81 per share. The issue price represented a -1.2% discount to the closing share price on the day prior to the announcement and a -3.6% discount to the most recently reported pre-tax net tangible asset valuation (NTA) prior to the announcement. The offer opened on 18 September 2023 and closed on 29 September 2023. The Company raised approximately $4.5 million with 5.6 million new shares issued under the SPP.

The Company stated the primary purpose of the discount is to grow the Company’s assets to gain additional access to market opportunities. The Company further stated that the increased size of the Company is expected to reduce the fixed expense ratio to benefit all shareholders. In addition to the stated expected benefits to shareholders, the Manager will also benefit from increased fees from the expanded assets under management.

Alex Shevelev Promoted to Portfolio Manager for Forager Australian Shares Fund

On 15 September 2023, Forager Australian Shares Fund ((FOR)) announced Alex Shevelev has been promoted to Portfolio Manager of the Fund. Alex will co-manage the portfolio alongside the founder of Forager, Steve Johnson. Alex joined Forager in 2017 and his promotion was a result of his strong contribution to fund performance and portfolio construction. The two Portfolio Managers will each have direct responsibility for a portion of the portfolio.

FOR’s portfolio has rebounded from the substantial declines experienced in 1H’CY22. The total cumulative NAV declined -35.3% in 1H’CY22. Since bottoming out in June 2022, the NAV has increased 23.9% to 31 August 2023.

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