Funding Circle fund adds firepower for buyback strategy

The portfolio, an investment trust, of loans originated by Funding Circle lowered its dividend expectations amid lower projected returns last year prompting a discount to its net asset value.

The Funding Circle SME Income Fund, a listed portfolio offering exposure to the P2P lending platform’s loans, has increased the scope of its share buybacks pot.

As an investment trust the £315m fund has both a net asset value (NAV) and share price meaning it can move to a discount or premium depending on sentiment in the market. If the two values are equal it is said to be at par. Following a move to a more than 10 per cent discount last year it started share buybacks in a bid to narrow its discount. It has now made additional capital available from its free cash flow to be deployed into share buybacks, the fund said yesterday.

Last year the investment trust lowered returns and dividend expectations as performance became more challenged in the second half of the year, owing to a number of factors.  

Last week it said that in January the fund grew just 0.03 per cent, weighed down by higher levels of defaults over the Christmas period.

The company has invested c.£2.2m in share buybacks since the announcement of the reduced NAV return guidance on 18 December. The share buyback programme will continue as long as the board regards the share price as attractive and the leverage limit is not breached.

Analysts at investment bank Liberum say increased buybacks may provide a measure of support for the share price  but it believes a material re-rating is dependent on the company demonstrating how it can achieve NAV returns of 6 per cent plus.

“The company has guided to a 4 per cent NAV return in the 12 months to December 2019. January 2019's monthly return was flat due to a high level of impairments in UK loans and this is expected to persist over the near term. The board is due to provide an update in the coming weeks following a review to consider ways to improve NAV and share price returns.