Honeycomb (HONY) has announced its annual results for the year ended 31 December 2020, during which it provided an NAV return of 7.7% over 2020, which was broadly in line with the prior year (2019: 7.8%). HONY’s chairman, Robert Sharpe, says that the stability of returns is particularly pleasing given the economic backdrop. He attributes the stability of returns to the trust’s conservative investment strategy that is focused on senior secured credit investments.
The announcement also highlights that the impairment charge for year has reduced by 24% to £5.58 million in 2020, from £7.37 million in 2019. Sharpe says that the reduction in the impairment charge is attributable to the focus on senior secured credit that protects the Company from adverse credit losses as well as the exit of a £45m unsecured consumer loan portfolio in August 2020.
Dividends
HONY reaffirmed its dividend target in August 2020 and continued to declare dividends at 20.00 pence per share each quarter, which is in line with the target dividend yield of 8.0 per cent annualised dividend on the issued share price at HONY’s IPO.
Financial results and debt facility
Average Credit Assets reduced to £551m in 2020 from £573m in 2019 as the Manager focused on cash generation following the onset of Covid-19. The manager says that the reduction in average Credit Assets, together with the repositioning of the portfolio to structurally secured loans and reductions in benchmark interest rates, reduced both interest income and impairment charges. The offsetting impact of these two factors was a net reduction in earnings of £6m. However, offsetting some of the strong performance in the asset portfolio were one-off costs incurred in relation to the debt facilities and costs incurred in relation to the potential merger.
HONY’s existing debt facilities matured in April 2020 and due to the Covid-19 pandemic the refinancing with a new bank was delayed. This created additional cost in agreeing an extension to HONY’s existing debt before refinancing onto a larger more flexible facility. In September 2020, HONY completed a new £250 million three-year facility with a global bank and in the same period refinanced two of its special purpose vehicles. As a result, Honeycomb ended the year with reported earnings of £20.7 million (2019: £31.2 million) and increased and longer-term debt facilities providing a strong liquidity position and the ability to fund the trust’s plans for growth over the medium term. Underlying earnings for the year were strong at £26.2m, driven by the strong performance in the credit portfolio.