P2P Global Investments a “value opportunity”, say analysts

The fund is continuing to transition its portfolio into new areas and has lowered its cost of debt.

The £752m P2P Global Investments fund is becoming an interesting “value opportunity”, according to analysts at Numis Securities, following further details on its transition to alternative credit assets.

P2P Global Investments – or P2P GI - published its annual report for 2017 this morning showing that its portfolio repositioning – first mooted last year - is being executed “in line” with the manager’s plan to move away from soley P2P loans, particularly unsecured consumer loans, into various niches of alternative credit assets.

In 2017 exposure to US consumer loans fell from 55 per cent to 22.8 per cent of the portfolio, including a portfolio sale in October 2017.  Exposure to secured lending has increased from 5.1 per cent to 23.8 per cent of the portfolio, including exposure to Zorin Finance (UK property development) and Castlehaven Finance (Irish property development.

Following a merger with the investment trust’s investment manager MW Eaglewood and Pollen Street Capital last September, the portfolio made a pronounced shift away from low yielding US unsecured assets towards assets with higher returns, typically focused on UK secured assets, Numis’ analysts say.

“The fund is trading on a 17.6 per cent discount and we believe it may be an interesting value opportunity. The next step to restoring confidence in the fund will be delivering a covered 15p quarterly dividend, which previous indications may be in H2 2018,”Numis said this morning following the publication of the annual report.

The investment trust, both Numis and Liberum say, is also seeking to arrange a new securitisation backed by UK SME loans originated through the Funding Circle platform following on from the company's securitisation of Zopa loans in Q4 2017. 

P2P GI says it saw its cost of borrowing fall in 2-17 owing to refinancing, securitisations and repositioning from 2.6 per cent to 1.9 per cent over Libor. This coupled with the news about the potential securitisation of Funding Circle loans will be positive for the fund, analysts at Liberum say.

Last year's Zopa transaction "priced attractively", they said in a note, with a weighted average cost of 1-month Libor + 99basis points.

“We would expect the proposed Funding Circle transaction will also help to diversify the source of funding and lower the company's existing cost of debt,” they said in note this morning,” Liberum said.

P2P GI is targeting a covered 15p quarterly dividend by the end of Q2 2018, implying a 7.5 per cent dividend yield however it is currently paying dividends 12p per quarter, equivalent to a yield of 6.1 per cent on the share price. Also, Numis notes, currently the dividend remains uncovered with earnings of 35.4p in 2017 only covering 74 per cent of the total dividends of 48p for the year.