GLI Finance (GLI) has successfully altered its investment strategy to participate in the fast-evolving and expanding alternative finance market through investing in alternative finance platforms, alternative finance loans and the creation of an asset management company. Loan growth at its platform investments is accelerating and management expects most to be profitable within a year. GLI aims to continue paying the generous dividend it paid as a CLO investor. It offers investors a 10% yield with the prospect of capital gains from its platform investments. A likely £30m issue of additional zero dividend preference shares (zeros) in early 2016, and dividends remitted from its investments could enable GLI to cover this dividend with cash earnings in the next couple of years.
The alternative finance industry is currently achieving rapid growth and within it GLI has built a diversified portfolio of companies to participate in that growth. GLI's management expects that most of its platform investments will be profitable in the next year.
Management plans to issue additional zeros to better match the non-cash financing cost with the anticipated non-cash appreciation in value of its platform investments. This would leave the company’s equity free for high-margin and cash-generative lending. Supplemented by dividends remitted from a considerably expanded asset management business (AuM growth from £53m to c £1bn) and dividends from some of its profitable platform investments, this could result in cash earnings covering the dividend. We have included the issue of £30m of zeros in our forecasts but not the remittance of dividends from its platform investments.
GLI’s shares yield 10%, a premium over the listed alternative finance loan funds, which may reflect concerns over the sustainability of its dividend. If management's plans to cover the dividend are realised, these concerns could dissipate and its dividend yield move towards that of the loan funds. In addition, there is the prospect of capital gains from its platform investments to boost investor returns.