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80p dividend for Honeycomb shareholders ahead of merger

Pollen Street Secured PSSL

80p dividend for Honeycomb shareholders ahead of merger – Honeycomb (HONY) has posted its full-year results for the 12 months to 31 December 2021. During the period its dividend yield remained at 8% while its NAV returned 8.5%.

The group maintained its track record of investment performance with earnings of £30.3m and the portfolio remains stable, both with further advances invested in existing facilities, and with new relationships. Pollen Street continues to focus the portfolio on structured and secured loans, reducing the risk of underperformance in the portfolio.

The group ended the year with a net debt to equity of 70.9% which is within its stated target of 50 – 75%.

On 15 February 2022, Honeycomb announced that it had reached agreement on the terms of a recommended all share combination with Pollen Street Capital Holdings Limited, the parent company of the investment manager. Under the terms of the agreement, Honeycomb will acquire the entire issued share capital of Pollen Street Capital Holdings Limited in exchange for shares in the combined group. The combination is conditional on shareholder and regulatory approval. At the date of the announcement, shareholders representing about 56.4% of Honeycomb’s issued share capital have given their support for the transaction.

Statement from the chair:

Year under Review

In an environment where the economy and businesses were cautiously returning to a ‘new normal’ of trading, Honeycomb Investment Trust has continued to perform well throughout the year executing on a strong pipeline of opportunities.  The company started the year with a robust cash position, and a pipeline of opportunities presenting strong underlying asset returns, and as a result of this was able to produce the strongest year since 2017.

Earnings for the year were £30.3m (2020: £20.7m) and monthly performance was consistent, delivering 8.5% NAV return for the year, up from 7.7% over 2020.  The stability of the returns is a testament to the successful strategy.

The impairment charge for the year has reduced from £5.6m in 2020 to a release of £0.8m in 2021. The reduction in impairment charge is attributable to the focus on senior secured credit that protects the company from adverse credit losses and the improving economic outlook.

The company continued to declare dividends at 20.0p per share each quarter. This is in line with the target dividend yield of 8.0% annualised dividend on the issued share price at the IPO. However, the company has indicated that the dividend will be cut following the merger and this has understandably driven some selling pressure. The company says it will start buying back shares once again. We reiterate that dissenting investors should be offered a cash exit at NAV.

The share price closed the year at 945p on 31 December 2021, which is a modest discount of 7.3% (2020: 7.0%) to NAV.

Outlook

2021 has been a year of execution and consistency for Honeycomb. Having demonstrated the stability of the strategy over 2021 the Board is confident the Company will continue to deliver attractive investment returns. Looking ahead there are a number of factors that position Honeycomb strongly for 2022.

Firstly, market dynamics continue to drive compelling investment opportunities. Non-bank lending is an increasingly critical part of the lending landscape, providing financing to millions, including those that are underserved by high street banks. The Company continues to aim to be the finance partner of choice for the non-bank sector. Thanks to deep expertise and relationships, the Investment Manager is able to source most investments internally and negotiate bi-laterally.

Second is the strategy employed by the Company to address these investment opportunities. The strategy focuses on senior secured, asset-based credit investments, which is a structure that aligns interests between Honeycomb and its borrowers. The strategy has driven stable NAV returns over 2021.

Finally, positive societal and environmental impact continues to be an important feature of the Honeycomb investment strategy. Lending over the course of 2021 has supported regional economic growth, affordable homes and the transition towards a net zero emissions economy.

HONY : 80p dividend for Honeycomb shareholders ahead of merger

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