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Volatile UIL gives up last year’s gains

For the 12 month period ended 30 June 2022, UIL’s NAV total return was -38.1%, more than reversing the previous year’s 50% gain, and its share price return was -27.6%. The fall in assets left it with gearing of 89.5% [which is one reason why the NAV moved so much, up and down – the change in the value of the whole portfolio over the year was -24.6%]. The full-year dividend was maintained at 8p and was covered by revenue of 8.35p.

Most of the gearing is provided by zero dividend preference shares. At 30 June 2022, net assets were £218.7m, the zeros totalled £140.8m and bank debt was £51.1m. [This is important because the zero dividend finance tends to be much more flexible than bank debt. The bank debt will rank above the zeros, so as far as the bank is concerned it has £359.5m of assets covering its loan and will probably be happy with that.] UIL’s 2022 ZDP shares (£51.2m of the end June zeros outstanding) will be redeemed on 31 October 2022, and the managers have taken steps to fund the redemption payment. As at 30 June 2022, UIL’s average blended rate of funding costs, including bank debt, increased slightly from 4.5% to 4.7%.

UIL values its stakes in Utilico Emerging Markets Trust (UEM) and Zeta Resources based on their market bid prices. As at 30 June 2022, discounts to published NAVs widened to 13.9% for UEM (some £10.1m) and narrowed marginally to 15.4% for Zeta (some £11.7m). Together these discounts amount to £21.8m attributable to UIL. Adding these back would see UIL’s adjusted NAV per share increase by 10.0% to 286.89p and UIL’s implied discount widen to 34.6%.

Most investments have been marked down in the year to 30 June 2022 in the face of significant market weakness. Eight of the top ten holdings had some significant declines in value. Resimac Group‘s share price fell 53.3% during the year (the company is an alternative lender for residential mortgages and asset finance in Australia and New Zealand). Given Resimac is now held directly by UIL and is 39.9% of Somers Limited’s portfolio and Somers is 35.7% of UIL’s portfolio, Resimac’s weakness has in turn accounted for 56.8% of UIL’s portfolio losses of £120.5m over the year. As at 30 June 2022, Resimac shares traded at an annualised historic price earnings ratio of 4.6x and a dividend yield of 7.0%. The chairman says that it is pleasing to see Resimac continuing to buy back its own shares on the market, while operating results have been good.

Resolute Mining has been a perennial underperformer. Resolute’s share price was down 55.4% on the back of what the chairman says was lacklustre operational performance and continued concerns over the political outlook in Mali. The Resolute board appointed a new CEO in May 2022. He thinks that early signs are that under new leadership Resolute is making good progress.

During the year UIL bought a number of listed investments from Somers at fair value which increased UIL’s listed portfolio and thereby improved UIL’s bank covenant ratios. Then, after the year-end, UIL together with its associates bought out the minority shares in Somers at USD 21.00 per share. Following this transaction, Somers distributed a number of investments to the new shareholders. UIL received further shares in Resimac and a holding in The Market Herald, an ASX listed financial news service.

UTL : Volatile UIL gives up last year’s gains

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