Funding Circle SME Income cuts dividend forecast – Funding Circle SME Income Fund’s board has announced that it “has noted a material increase in the cost of hedging the company’s US Dollar-denominated assets back into sterling“. It blames “divergent monetary policy and economic prospects in the US and UK, which has seen a significant widening of the GBP/USD interest rate differential over the past eighteen months.” The board has assessed this and thinks that this is a situation that is likely to persist for some time.
An increased cost of hedging puts pressure on the company’s revenue account but they also have to contend with a lower level of gearing within the fund. loans that they have made using funding from a facility provided by the European Investment Bank are being repaid. The overall level of gearing is falling – its is about 45% now. They would like to restore gearing back towards the 50% level but in the meantime, net revenue is falling too.
The upshot of all this is that the board “has reappraised the anticipated currency hedged returns available from its SME loan portfolio over the next 12 months, and has assessed that such returns will enable the Company to pay a fully covered annual dividend of 5 to 6 pence per share, with effect from the quarter ended 30(th) September 2018.” that is down from an annualised rate of 6.5p currently.
The shares are off 3% at the time of writing.
FCIF : Funding Circle SME Income cuts dividend forecast