Australian Listed Investment Company Report

Australia | Mar 07 2024

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.

For comprehensive comparative data tables for LICs please see attached (logon required).

LMI Market News
February saw the conclusion of reporting season for the half-year results for those LMIs with a June year-end and full year results for those with a December year-end. We will be providing a review of the results in the next edition of the monthly update.

NBI Unitholders Approve Transition to Unlisted Fund
At a meeting in February, NB Global Corporate Income Trust ((NBI)) unitholders voted overwhelmingly in favour of the Trust to de-list from the ASX and operate as an unlisted fund. Trading is scheduled to be suspended on 10 May 2024.

Unitholders also voted in favour of a transition fee and a limit on the monthly redemptions at 5% of the Fund’s NAV at the end of the preceding month.

The Transition Fee will apply to redemptions from the Fund within 12-months from the cessation of trading of the Fund on the ASX. The Transition Fee seeks to facilitate the transition from a closed-ended fund to an open-ended fund with daily liquidity. Unitholders that do not sell on market prior to the suspension of trading, will be subject to the transition fee and redemption limitations if they seek to exit within 12-months after delisting.

For investors seeking long-term exposure to the investment strategy, units can still be picked up at a discount to NAV.

Transition Fee
[see document attached]

Is WAM Doing the Right Thing Maintaining the Dividend?
After acquiring a number of listed and unlisted vehicles to grow the Company, WAM Capital Limited ((WAM)) is in a situation where the Company is paying out in excess of $100 million in dividends at the current rate, with the Profits Reserve under constant strain and a depleted franking credit account.

The Chairman, Geoff Wilson, has previously stated that the Company will continue to maintain the dividend until the Profits Reserve is depleted to a point where the Board are forced to cut dividends. Is this the right approach? The answer to that question will be different for everyone.

In IIR’s view, we believe prudent management of the Profits Reserve to ensure long-term sustainability and growth of dividends is optimal. This may mean having to cut dividends at times when there is prolonged market weakness however resetting dividends to more sustainable levels when the opportunity arises is what IIR believes is in the best interests of shareholders long-term.

Some shareholders however, may be reliant on the dividend stream and do not want to see the dividend cut. Those shareholders that are not concerned with the share price on a day-to-day basis may want the Board to continue to maintain the dividend as long as possible, even if this compromises the ability of the portfolio to generate capital growth.

The market resurgence towards the end of the year, saw WAM’s Profit Reserves boosted which resulted in the Company maintaining the FY24 interim dividend, albeit partially franked. The short-term fix may keep shareholders happy from a dividend perspective, however any kind of market weakness and the music will come to a halt with the portfolio needing to generate capital gains in the 2H’FY24 to be able to maintain the dividend. In the meantime, the constant threat of a dividend cut will likely see continued volatility in the share price.

TGF Board Have a Lot to Answer For
Tribeca Global Natural Resources Limited ((TGF)) released their 1H’FY24 results on 27 February 2024, reporting a $10.6 million loss and not being able to pay a dividend for the period.

In early 2023, TGF undertook a highly dilutive capital raising. The capital was raised to grow the size of the Company to improve liquidity and broaden the shareholder base which was aimed at taking steps towards addressing the persistent discount to NTA at which the Company was trading.

After raising the capital, the Company then made the decision to payout an oversized dividend, and decided to not just dip its toe in the water with dividends but emptied the lake. The payment of the dividend for the FY23 period saw the Company exhaust any retained earnings and left the potential for further dividends up to having a bumper half year, which did not eventuate.

In its AGM Investment Management Presentation in November 2023, the Company stated it was committed to closing the NTA discount believing one of the key drivers to be providing consistent dividends to shareholders. At this time, given the performance of the portfolio it was becoming difficult to see how the Company was going to be able to pay an interim dividend. IIR views the retained earnings and reserves position of the Company as well as the communication to shareholders regrading dividends to have been poorly managed.

Switzer Dividend Growth Fund Appoints New Manager
Switzer Dividend Growth Fund ((SWTZ)) has announced a change to the investment manager. The Trust will be replacing Blackmore Capital Pty Ltd with Vertium Asset Management Pty Ltd as investment manager, effective 28 March 2024.

SWTZ seeks to provide investors with an above market yield while maximising franking where possible and deliver capital growth over the long-term. The Fund seeks to achieve this through a portfolio of ASX-listed equities and do so with lower volatility and capital preservation relative to the S&P/ASX 200 Accumulation Index.

There will be no change to the management fee payable, however the change in the investment manager will be accompanied by two changes to the investment strategy for the Fund:

1) the benchmark will change from the S&P/ASX200 to the S&P/ASX100 Index with the Fund now seeking to provide an income return that exceeds the S&P/ASX 100 Accumulation Index over rolling 12-month periods, franked to a material extent, while also maintaining a lower level of volatility; and

2) the Fund will be able to use derivatives up to a maximum of 10% of the Fund, providing an efficient way to manage market exposure and allow the Fund to maximise option income.

The Responsible Entity (RE) believes the change in the investment manager provides an opportunity to improve the performance of the Fund, both from an income and capital growth perspective. The change comes after a comprehensive review by the Board of the existing arrangements.

PAI Cuts Interim Dividend
Platinum Asia Investments Limited ((PAI)) cut the interim dividend for the FY24 period 40% on the previous interim dividend to 1.5 cents per share. The dividend is fully franked and this is the primary reason for the dividend cut. The Company seeks to pay fully franked dividends and while the Company has the ability to pay a dividend given the Profits Reserve position, the franking account has depleted in recent years.

After the payment of the interim dividend, the Company has the ability to pay fully franked dividends of up to 1.5 cents per share. Given the Company’s policy to only pay fully franked dividends, there may be further dividend cuts in the event the Company does not generate franking credits.

GCI Raises $97 million through Entitlement Offer
In February, Gryphon Capital Income Trust ((GCI)) raised $97.3 million through the entitlement offer and shortfall offer, achieving the maximum potential raise under the offer. 48.63 million new units will be issued under the offer. Following the offer, the Trust announced an additional placement to wholesale and sophisticated investors, which raised a further $37.7 million through the issue of 18.87 million new units. All new units under the offer and placement were issued at $2.00 per unit.

Capital raised will be deployed in line with the investment mandate, providing additional scale to the Trust’s participation in the RMBS/ABS market.

MOT Announces Unit Purchase Plan (UPP)
On 23 February 2024, Metrics Income Opportunities Trust ((MOT)) announced a non-underwritten UPP, providing eligible unitholders the opportunity to acquire up to $30,000 worth of new units at $2.13 per unit, which represented a slight discount to the NAV at the date of the announcement.

The UPP is scheduled to open on 6 March 2024 and close on 28 March 2024. Funds raised will be invested in accordance with the investment mandate of the Trust.

RF1 Increasing Exposure to Private Credit Strategy
Regal Investment Fund ((RF1)) has been repositioning its portfolio, increasing exposure to the Private Credit Strategy. The Private Credit Strategy is the most recent addition to the portfolio, with the strategy added to the portfolio in March 2023.

The initial weighting to the strategy was 3% of the RF1 portfolio. During the December quarter, the RF1 increased exposure to the Private Credit Strategy from 3.0% to 12%, with the strategy representing 14% of the portfolio as at 31 January 2024.

The increased exposure signifies that the Manager believes the strategy offers attractive risk-adjusted returns when compared to the long/short equity strategies with exposure being reduced to the Market Neutral and Small Companies strategies.

Lion Selection Group Completes Plutonic Investment
Lion Selection Group Limited ((LSX)) completed a $2 million investment in Plutonic Limited in February, taking its interest in the company to 48.5%.

According to LSX, Plutonic has identified potential at its key Champion Project in the Northern Territory for new mineral systems over a large area, providing the basis for large exploration targets which could lead to district scale discoveries.

PAI and PMC Options Expiring on 28 March
The bonus options issued by Platinum Asia Investments Limited ((PAI)) and Platinum Capital Limited ((PMC)) in April 2023 expire on 28 March 2024. The bonus options were issued to provide shareholders the opportunity to participate in any upturn in markets during the bonus option exercise period with the exercise of options increasing the size of the company’s providing the potential for enhanced liquidity.

The bonus options were assessed as a fair and equitable way to potentially increase the size of the company’s given both companies have traded at persistent discounts in recent years.

Very few options have been exercised to date with the options trading out-of-the-money for the most part. Given where the share price is trading at, the relative performance of the portfolio in recent times and the dividend cut by PAI, it is hard to see a large portion of options being exercised, however any market improvements over the coming month may see this change.

QRI Raises $15 million from a Wholesale Investor
After raising $41 million in December 2023 through a placement to wholesale and institutional investors, Qualitas Real Estate Income Fund ((QRI)) raised a further $15 million in February through a placement to wholesale investors at a price of $1.60 per unit.

Like many fixed income LITs, the Trust has taken the opportunity to raise capital while the Trust is trading around par value. The Trust will need to deploy the capital promptly to ensure the distribution to existing unitholders is not diluted.

For more news and data: see document attached above.

Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPOs. IIR takes great pride in the quality and independence of our analysis, underpinned by high caliber staff and a transparent, proven and rigorous research methodology.

INDEPENDENCE OF RESEARCH ANALYSTS

Research analysts are not directly supervised by personnel from other areas of the Firm whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts.

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Evaluation and remuneration: The remuneration of research analysts is determined on the basis of a number of factors, including quality, accuracy and value of research, productivity, experience, individual reputation, and evaluations by investor clients.

INDEPENDENCE – ACTIVITIES OF ANALYSTS

IIR restricts research analysts from performing roles that could prejudice, or appear to prejudice, the independence of their research.

Pitches: Research analysts are not permitted to participate in sales pitches for corporate mandates on behalf of a Broker and are not permitted to prepare or review materials for those pitches. Pitch materials by investor clients may not contain the promise of research coverage by IIR.

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Other permitted activities: Analysts may be consulted by Firm sales personnel on matters such as market and industry trends, conditions and developments and the structuring, pricing and expected market reception of securities offerings or other market operations. Analysts may also carry out preliminary due diligence and vetting of issuers that may be prospective research clients of ours.

INDUCEMENTS AND INAPPROPRIATE INFLUENCES

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DISCLAIMER

This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research (“IIR”) (ABN 11 152 172 079), an corporate authorised representative of Australian Financial Services Licensee (AFSL no. 410381. IIR has been commissioned to prepare this independent research report (the “Report”) and will receive fees for its preparation. Each company specified in the Report (the “Participants”) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the “Participants”, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication.

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