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Life Sciences Investor Briefing Webcast

We reviewed RMDL in detail in our initiation report, Predictable revenue streams generating high yield, published on 5 June 2019. RMDL offers investors an ongoing ca.6.5% dividend yield, supported by multi-year assets, a rising revenue yield and economies of scale. We outlined how credit is well controlled, gearing levels are appropriate, the investment manager’s interests are aligned to shareholders, and that any discount will be actively managed. There are risks when the cycle turns; and its book has shown a propensity to turn over, which, in the future, could see more external refinancing. The shares trade at a 2% premium to NAV.

  • RMDL monthly report: As at 31 May 2019, the company’s portfolio consisted of 34 debt investments with an average yield of 8.55%, spread across 13 sectors, with a split between fixed and floating rate debt of 60/40. The portfolio grew by £4m to £124m in May, despite three loan repayments.
  • Peer newsflow: On 25 June, GCP Asset Backed announced a placing of 60.3m shares at 105p, raising £63m. Hadrian’s Wall’s latest NAV (April) was 97.94p (pre 1.9% impact from increased general provisions taken in May). On 30 May, SQN announced significant progress on the Suniva investment in terms of litigation.
  • Valuation: RMDL trades at a small premium to NAV and to the average of its closest peers. We estimate that further equity issues at this level will enhance current shareholders by ca.1%. We note that RMDL has started to draw on its revolving credit line, making an equity issue more likely. RMDL has not seen a major loss.
  • Risks: Credit remains key for any lender, and we examine in detail the investment manager’s approach. We believe the right approaches to limit both the probability of default and loss, given default, are in place. The book has shown a surprising propensity to turn over. There are modest currency and key personnel risks.
  • Investment summary: RMDL offers investors a different asset class, with a substantial yield generated on a sustainable basis from long-term assets with predictable income streams. Like any lending business, credit needs to be correctly assessed, and managed once drawn down and recovered. RMDL has all these characteristics. The market has given it a small premium to NAV, reflecting these traits and a material element of market-driven valuation.
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