CQS New City High Yield published results for the 12 months ended 30 June 2022 last Friday. Over the period, the trust returned 2.0% in NAV terms and 1.2% in share price terms. The dividend was edged up to 4.48p from 4.47p. Revenue per share for the period was 4.16p and so the dividend was again uncovered by earnings (0.93x this year to 0.94x last year). However, the trust still has revenue reserves of 3.26p per share. As noted previously, the company experienced a 3.1% portfolio loss during the period following the write-down of Raven Property Group Ltd and Raven Russia 12% 09-31/12/2059, investments connected to Russia.
With respect to the dividend the chairman notes “In my report last year, I noted that the board was monitoring the potential reduction in investment opportunities available to the company because of declining yields. This trend looks to be reversing because of recent rises in interest rates from central governments which means that the investment manager is finding a greater range of suitable securities to invest in. This bodes well for future earnings.”
The board expects to pay similar dividends in the current financial year to last, possibly drawing modestly on reserves but anticipating some increase in earnings per ordinary share. The board believes that this policy is supported by shareholders.
Extract from the manager’s report
“We have continued to maintain a diversified portfolio across a range of sectors and during the year we have increased the proportion of the portfolio held in non-sterling currencies to help protect against sterling weakness.
The Company’s portfolio was negatively affected by the Ukraine conflict as we held investments in a Guernsey domiciled company called Raven Property Group which has direct exposure to Russia. Its main business is operating warehouses for Western companies in St. Petersburg and Moscow. At the end of January, we had 2.9% of the Company’s portfolio in the Raven Property 12% preference shares and 0.2% in its ordinary shares. Following the invasion, Raven suspended its shares and advised it was unlikely to be able to continue maintaining normal operations. It has since been delisted from the stock exchange, coupon payments on the preference shares have ceased and the price of both securities has been written down to zero in the Company’s portfolio. We are monitoring the position and will wait to see what happens to Raven Property when hopefully the situation stabilises.
Three of the new holdings in the top ten over the year are positions that we have held for some time and have made their way into the top ten more recently, namely REA Finance, Stonegate Pub Group and Diversified Energy. There are two other new holdings in the top ten; Mangrove Luxco 7.775% 2025 which is a holding company for a German heat exchange manufacturer and Hawk Debtco 10.5% 2024 which is a financing company for an Aberdeen based energy services firm.
The revenue account has seen earnings per ordinary share of 4.16p come in below our total dividend of 4.48p for the year. In past years we have been able to put significant sums into the revenue reserves and we have again modestly utilised these this year to ensure that this dividend is paid to shareholders. In my regular discussions with shareholders the revenue and dividends are topics of crucial importance and the ability of any portfolio company to pay its coupon or expected dividend is one of the major indicators we follow.”
NCYF : CQS New City High Yield finding more opportunities