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Hardman & Co November Investor Forum – Registration open now

Our report, Defensive qualities in uncertain times, noted that the key issues for RMDL continuing its track record of capital preservation and dividend streams are managing the probability of default (POD) and the loss in the event of default (LED). We concluded that i) credit assessment follows best practice, ii) accounts are closely managed on an ongoing basis, allowing early intervention, iii) security is robust, and iv) RM has the right approach to recoveries. On 17 October, RMDL announced a proposed placing at 100p (i.e. discount to current share price but premium to NAV) to raise up to £10m. The expected close is 7 November.

  • RMDL news flow: The ordinary share cum income NAV at end-September was 98.1p (August 99.0p), a monthly dividend-adjusted return of 0.7% (YTD 6.63%). The return came from net interest income (0.64p), portfolio gains (0.06p) and the dividend (-1.625p). There are 35 investments, with an average yield of 8.82%.
  • Peer news flow: GCP Asset Backed’s September NAV was 102.4p; it paid a special dividend, bringing the 12-month dividend to 6.425p. SQN announced that its August NAV performance was -0.55% (one-year return 4.21%). SEQI’s September NAV was 105.3p (August 104.62p).
  • 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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