Honeycomb beats its dividend target

Honeycomb beats its dividend target – Honeycomb Investment Trust has released its accounts covering the year ended 31 December 2017. Over the year the NAV increased to 1018.4p from 1014p. The £105m fund raising that they carried out last May, which was done at a premium to asset value, benefitted ongoing shareholders and added 1.03% to the NAV. The introduction of IFRS9 – a new accounting standard that requires funds like Honeycomb to make a provision for possible bad debts in its portfolio, reduced the NAV by 0.75%. It is important to point out that this is just an estimate. The Q1 2017 dividend increased from 23.50 pence per share in Q4 2016 to 24.50 pence per share in Q1 2017. This provided an above target yield on an annualised dividend of 9.8 per cent compared with 9.4 per cent (undiluted 12.5 per cent) in Q4 2016. The dividend remained at 20.00 pence per share for Q2 and Q3 2017 to provide the target annualised dividend.

In the first three months of 2017, they were focused on deploying the GBP50 million total gross proceeds from their December 2016 capital raise, and, as part of this, in January 2017 the company acquired a loan book from, and took an equity stake in, Hiber Limited (formerly The Green Deal Finance Company). Through the remainder of 2017, Honeycomb purchased five further portfolios of consumer loans. Three were portfolios of secured loans and the other two were unsecured. One of these secured portfolios was purchased on 20 December 2017 when they acquired certain interests of Commercial First DAC Limited which gave it accounting control of Business Mortgage Finance 3 plc. This is a special purpose vehicle (“SPV”) holding commercial mortgages.

At acquisition, the other four portfolios comprised in aggregate over 45,500 loans with an average balance of GBP2,600. All portfolios have performed in line or ahead of expectations.

In the last quarter of 2017 they focused on their organic origination channels (organic meaning self generated as opposed to business that they bought). In the light of higher levels of consumer indebtedness and increasing competition in mainstream markets, they decided to protect themselves by investing more in structured facilities, with six new facilities drawn down. In these facilities, they get exposure to the underlying credit assets, but with the added protection of a partner taking the first loss in the event of a default. All the borrowers have performed well.

HONY : Honeycomb beats its dividend target