Brokers' Views: Gall & Eke

Gall & Eke regards AIM-listed, Guernsey-domiciled Greenwich Loan Income Fund, formerly the T2 Income Fund, as a punt which ‘may turn out very profitable’, although the shares are ‘not for widows and orphans’.

Greenwich invests in debt securities of companies, mainly in first-lien senior secured debt and primarily investing in businesses in the US and operating in the healthcare and telecoms sectors. ‘That may sound high-risk,’ Gall & Eke writes, ‘but Greenwich has only had one single payment default in its portfolio in three years from over 60 investments. Total dividends paid from inception in August 2005 to December 2008 were 19.5p per share. Dividend payments were suspended for three quarters from October 2008. However, a dividend of 0.5p has been declared and is to be resumed in October 2009. We expect this dividend to grow to two to four pence per annum.’

Paying off debt
‘Having raised £11 million of new capital at 25p, Greenwich could buy back some of its liabilities cheaply, reducing leverage to more sensible levels and enabling Greenwich to increase its “real” NAV,’ writes the broker. ‘We estimate that the pro forma IFRS NAV (with the liabilities at fair value) would fall from around 148p to around 80p, reflecting the issue of new shares at a big discount.’

However, ‘if Greenwich is able to buy back some of its liabilities with this new capital at, say, 50 per cent of their par value, then the NAV deducting the liabilities at their par value would increase by up to 10p per share, leaving the shares trading at a substantial discount to net asset value and on a dividend yield of up to 12 per cent’.