A holding in both of the Seneca Diversified Income and Diversified Growth funds and the Global Income & Growth Trust, the proceeds have been used to increase the fund’s holding in two of its infrastructure and direct lending holdings.
“At the time of purchase the company was a good example of the value that can be found in certain UK mid-caps,” said Mark Wright, a fund manager at Seneca.
“The shares were yielding close to 6% and trading on an attractive P/E of just 10 times 2018 earnings. The company was formally covered by only four sell-side analysts and was largely overlooked by the wider investment community. It had a dominant market position, and generated strong cashflow. Its revenues were defensive in nature and the business model earned a high return on capital.”
However, Wright said the shares have since re-rated, yielding just 3.3% and trading on 17 times earnings.
“The exit is a result of our strong value discipline, and we have redeployed the capital to specialist assets, where we believe better value can be found,” he explained.
The sale proceeds were used to increase the fund’s allocations to the global infrastructure fund International Public Partnerships (INPP) and RM Secured Direct Lending.
“INPP is our only socially focused infrastructure holding,” he said. “We believe the concern over the scope and ability of a Labour government taking back control of public finance initiative assets (PFI) has been overdone.
“However, if this does come to pass, the impact on INPP would be limited as it has no acute hospital exposure, arguably the sector most exposed to potential government action. The fund’s total exposure to UK PFI is less than 25%; in recent years it has focused on non-PFI related assets such as the Thames Tideway super sewer and offshore power transmission assets. The operational performance of INPP’s assets and customer satisfaction levels also rank highly.”
Meanwhile, Wright said Seneca has been pleased with RM Secured Direct Lending’s progress in building up a portfolio of secured asset loans to UK borrowers, backed by predominantly senior secured rights over assets and/or income streams.
“With the latest equity raising through a C share issue, which should be deployed in a reasonably short period of time, there is a good pipeline of opportunities,” he said. “The fund also offers decent income with a target net dividend yield of over 5%.”
