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In our 6 January note, An Alternative Alternative, we considered how RMDL could be viewed as an alternative to social infrastructure investment companies, with that sector becoming an increasingly important part of RMDL’s portfolio. We concluded that, compared with such investments, RMDL i) offers a higher dividend yield, ii) carries less downside risk, and iii) has a non-correlated share price. RMDL does not have the same equity upside, but offers investors a different portfolio option. As noted in our initiation report, RMDL delivers its returns through high skill and service levels, assessing, monitoring and collecting credit in line with best practice.

  • RMDL news flow: The ordinary share cum income NAV at end-November was 98.45p, a monthly dividend-adjusted return of 0.2% (YTD 7.05%). The return came primarily from net interest income (0.58p). On 16 December, RMDL announced a gain of ca.51bps on an early repayment and two new investments.
  • Peer news flow: There was no news from GCP Asset Backed in the month. SQN announced that its November NAV performance was +0.39% (one-year return 3.63%). SEQI’s November NAV was 104.873p (October 104.08p). It also increased its revolving credit line. Riverstone Credit is now 82% committed (41% invested).
  • Valuation: RMDL trades at a small premium to NAV and to the average of its closest peers. Investors can take comfort from the NAV being robustly reviewed by external agents. RMDL issuing equity above NAV enhances existing shareholders. It has not seen a major loss.
  • Risks: Credit is key for any lender, and we have examined 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 and a strong pipeline. Any lending business needs to correctly assess and manage credit. 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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