Sequoia Economic Infrastructure Income (SEQI)
09/12/2024
Results analysis from Kepler Trust
Intelligence
Sequoia
Economic Infrastructure Income (SEQI) delivered positive NAV per
share growth over the six months to the end of September, with its
steady high dividends boosting the NAV total return to 5.1%. NAV
per share rose 1.3% to 95.03p, while the trust paid dividends, on
target, worth 3.4375p. Over the period the share price discount to
NAV widened from 13.5% to 15.6%, and so the share price total
return was 3.2%.
Two quarterly
dividends of 1.71875p were cash covered by a factor of 1.06x. The
board expects the dividends to remain cash covered in the second
half.
The board has
continued to implement one of the largest buybacks in the listed
fund sector, commenced back in July 2022, spending £39.5m to
repurchase 49.3 million shares over the period. These contributed
0.47p to NAV per share. The board states it will continue these
buybacks to support share price and reduce discount levels,
factoring in the underlying liquidity of the portfolio, dividend
cover and portfolio diversification needs amongst other
considerations.
Board chair
James Stewart said: "I am delighted to announce another robust half
year performance. As the economic challenges experienced in the
previous financial year have begun to ease in the last six months,
the Company has demonstrated its adaptability, resilience, and
ability to generate significant cash. This performance supports our
ongoing balanced approach to capital deployment, underpinned by the
Investment Adviser's extremely selective approach as it considers
the strong pipeline of future opportunities, benefitting from
ongoing strong market demand for infrastructure debt
finance."
Kepler
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Sequoia Economic
Infrastructure Income (SEQI) has once again delivered a high yield
with a solid NAV, and burnished its credentials as an interesting
option for fixed income exposure. Annualised NAV returns of 10.2%
exceed the targeted 7-8% over the long run. They were equivalent to
the returns of the high yield bond market, but were almost entirely
due to income rather than movements in the prices of the debt
portfolio, which netted off essentially flat. The short average
portfolio loan life of 3.5% and 42% exposure to floating rate loans
make the portfolio valuation relatively insensitive to interest
rate movements, with a modified duration of close to 2%. SEQI
invests predominantly in private debt, and focuses on economic
infrastructure related names. This brings defensiveness and
exposure to some of the key structural growth themes in the world
economy.
The managers are bullish on
the investment pipeline, noting that they have identified c. £500m
of potential investments with an average yield of 10.1%, above the
gross target range of 9-10%. They note that they have identified
investments in Italy and Portugal which may for the first time
feature in the portfolio.
At the current discounted
price, SEQI offers a highly attractive 8.6% covered yield, achieved
without the use of structural fund gearing. The 15.6%
discount to NAV also provides attractive potential upside which is
not normally available elsewhere in the credit market. The board
has committed considerable capital to buybacks in pursuit of
narrowing the discount and these have added 0.47p to NAV per share
during the period in question. The trust has significant cash on
the balance sheet to use for buybacks or further investments. The
trust has a net cash position of £69m providing plenty of
flexibility, and the board has stated that it may use the revolving
credit facility more frequently to meet investment and buyback
requirements.
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