At the Hardman & Co Investor Forum presentation, RMDL summarised the investment opportunity as “RM Secured Direct Lending offers access to a diverse portfolio of secured loans with good collateral – overall the portfolio is high income due to the ability of the manager to capture the complexity premium”. It offers investors i) a high dividend yield (ca.9%), ii) a proven record in downside risk management, and iii) a non-correlated share price. Its monthly NAV has been very stable, driven by predictable net interest income. We examined these themes and how RMDL assesses, monitors and collects credit in our initiation report.
- Presentation: The presentation focused on i) RM Fund manager overview, ii) overview of current conditions, iii) direct lending opportunity, iv) how RMDL exploits this opportunity, v) strong corporate governance, and vi) the resultant portfolio. It re-confirmed our confidence in the risk controls and appetite.
- Q&A: The questions in our forum were i) credit – sector exposure to hotels (23% book) and loss experience, ii) the shareholder structure of the trust, iii) why would a borrower come to RMDL, iv) why buy credit fund now, v) the impact of current conditions on mark-to-market value, and vi) confidence in NAV. Answers later.
- Valuation: With recent market-wide turmoil, RMDL now trades at a 22% discount to the end-February NAV. Until recently, it was on a premium. RMDL, to date, is one of the few consistent performers within the sector as the business has proved much more resilient than the share price making this discount anomalous.
- Risks: Credit remains key for any lender, and we examine 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 assess and manage credit correctly; this is carried out by RM Funds, which has a proven track record of doing so consistently well.