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Investment Trust Watch: Woodford's pricey P2P pick

Investment Trust Watch: Woodford's pricey P2P pick

The Honeycomb (HONY) investment trust is looking expensive as investors swarm to the peer-to-peer lending fund, sending the shares to a hefty premium that contrasts with the heavy discounts suffered by rival trusts.

They've been joined by Citywire A-rated Neil Woodford, who announced last month he had invested a small chunk of his Woodford Equity Income fund in the burgeoning trust.

Shares in the £218 million trust trade at a 9.8% premium to net asset value, well above the 3.3% average over the last 12 months, placing them towards the top of Numis Securities' list of 'expensive' investment trusts, on a Z-score of 3.3.

Just to recap, a Z-score is a measure used by analysts to tell if an investment trust share is trading beyond its normal one-year range. Broadly, a Z-score of -2 or below is considered cheap, while a score of 2 or more is viewed as getting expensive.

'Expensive' trustsShare price premium (-discount) to net asset value %12-month average premium (-discount) %Z-score
Macau Property Opportunities (MPO)-27.6-45.13.4
Honeycomb IT (HONY)
Manchester & London (MNL)-11.3-20.83.2
NB Global Floating Rate Income - £ (NBLS)3.3-2.33.0
Chenavari Capital Solutions (CCSL)-0.6-8.93.0
Aurelius Equity Opportunities (AR4)58.336.72.9
Symphony International Holding (SIHL)-23.8-39.92.8
Industrial Multi Property Trust (IMPT)3.0-28.42.5
Prospect Japan (PJF)-3.3-24.52.5
SME Loan Fund (SMEF)-2.4-7.22.4
Monks (MNKS)-1.3-9.22.4
Custodian REIT (CREI)
NB Private Equity (NBPE)-14.3-23.42.3
Better Capital 2012 (BC12)-44.1-63.02.2
Invesco Perpetual Select - Balanced Risk (IVPB)1.2-1.42.2

Shares in Honeycomb enjoy the highest rating of any in the direct lending sector, although it is not the only one to sit on a preimum.

Shares in Hadrian's Wall Secured Investments (HWSL) trade 8% above NAV, RM Secured Direct Lending (RMDL) is on a 4.1% premium while Funding Circle SME Income (FCIF), which today announced a C-share issue, stands on a 2.6% premium.

This contrasts with the 20% discount on the shares of the largest trust in the sector, P2P Global Investment (P2P), while the next biggest, VPC Specialty Lending (VSL), trades on a 19% discount, and shares in Ranger Direct Lending (RDL) trade 14% below NAV.

Even with the high rating on its shares, Honeycomb still boasts a high yield, at 7.3%, although lower than those on offer by the discounted shares in Ranger (9.2%) and VPC (7.8%).

It's also trumped on the yield front by the SME Loan Fund (SMEF), despite the £52 million trust's rally in recent weeks to a place in the 'expensive' list, after plans to sever ties with founder GLI Finance (GLIF) were announced.

Honeycomb hasn't struggled to garner support. Having raised £100 million at £10 per share in late 2015, the trust raised a further £50 million at the same price last summer, and another £50 million at £10.15 just before Christmas.

That's despite a waning of investor sentiment towards some of the other trusts in the sector, which have been hit by rising default rates.

In May last year, VPC became the first trust to post a monthly NAV fall due in part to increased default provisions. Its shares are down 10% over the last 12 months as the discount has widened.

Shares in P2P are down by nearly as much, 9.2%, with Simon Champ of manager MW Eaglewood Europe pinning the blame on increased 'delinquencies' by borrowers.

But that hasn't deterred Woodford, who followed up his investments in both P2P and VPC by buying a small stake in Honeycomb in January.

Honeycomb also has big backing from Woodford's former employer, Invesco Perpetual, which owns nearly 46% of the shares, with the trust held by his successor as Invesco Perpetual Income and High Income manager, Mark Barnett.

Barnett will perhaps be looking on enviously at Honeycomb's premium, as his Keystone (KIT) investment trust drifts to a 12.5% discount, making it the 'cheapest' investment trust in the land.

'Cheap' trustsShare price premium (-discount) to net asset value %12-month average premium (-discount) %Z-score
Keystone IT (KIT)-12.5-9.8-2.3
Drum Income Plus REIT (DRIP)2.810.5-2.3
NAXS Nordic Access Buyout (NAXS)-15.0-8.4-2.3
TOC Backed Lending (PBLT)5.45.6-2.2
Terra Capital (TCA)-19.4-14.9-2.1
Strategic Equity Capital (SEC)-15.9-8.0-2.1
BlackRock Latin American (BRLA)-16.6-13.7-2.1
ICG Longbow Sennior Secured UK Property Debt Investments (LBOW)-2.01.2-1.9
Pacific Horizon (PHI)-14.4-11.6-1.8
Investment Company (INV)-8.6-2.8-1.8
CATCo Reinsurance Opportunities C (CATC)-5.6-0.5-1.7
JPMorgan American (JAM)-5.3-3.5-1.6
North Atlantic Smaller (NAS)-19.7-16.3-1.6
NB Distressed Debt - Extended Life (NBDX)-7.9-5.9-1.6
Witan Pacific (WPC)-16.6-14.5-1.5

Honeycomb owns subsidiary Honeycomb Finance, and through that entered into agreements at launch to take on lending refferals from personal loan broker Freedom Finance, energy efficiency products financing group Entu, consumer credit firm Pay4Later and challenger bank Shawbrook (SHAW).

It has also been buying up loan books. Last February, the trust bought a £15 million portfolio from consumer finance groups Caledonian and Carnegie. It swooped on a £54 million portfolio from home finance group GE Money in April and launched last summer's fundraise to finance the purchase of another tranche from the same group. 

The trust's latest deal was to buy £40 million of loans from the Green Deal Finance Company in January.

Honeycomb is managed by Pollen Street Capital, launched in 2013 by former members of Royal Bank of Scotland's private equity team.

Investors are clearly confident Pollen will make a success of Honeycomb, but the problems suffered elsewhere in the sector serve as a warning sign over peer-to-peer lending's growing pains.

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