GLI Finance (GLI) has new management, a new strategic investor and is undergoing a strategic review designed to maximise shareholder value from its investments in 19 alternative finance platforms. It has effectively become an operating company rather than an investment company, which should give it greater control of its assets, and its destiny. The shares offer a high yield of 7.8%. This is not covered by current earnings or operational cash flow but can be paid from cash, selling assets or increased borrowing. In future the company plans to pay it from dividends remitted to it from its investment platforms.
GLI has investments in 19 companies operating in the fast-growing alternative finance industry. To capitalise on the opportunities available, GLI is undertaking a strategic review of its investments to enable it to focus on those it believes will deliver the highest shareholder return in the near term. Previously it was spreading its human and capital resources thinly over too many opportunities.
Somerston, a Jersey-based family office, has taken a 13.5% holding in GLI and acquired some assets from it in return for cash, which has allowed GLI to strengthen its balance sheet. GLI does have some platforms that are already profitable (Sancus and BMS and some smaller unidentified platforms according to management), but many are currently subscale and unprofitable. A strategic investor that could invest in loans made through the platforms and enable the platforms to reach a critical size at which they could become profitable is potentially valuable.
GLI offers investors an 7.8% dividend yield, which compares favourably with the UK equity market (c 4%) and is comparable to the yields offered by specialist funds investing in SME loans. However, in 2016 the dividend will be uncovered by cash earnings. GLI’s P/NAV of 75% is lower than that of the SME loan funds, suggesting good value, but c 40% of the NAV is derived from its holdings in the alternative finance platforms and their value is highly uncertain at the moment. GLI intends to increase the transparency on the financial results of its platform investments and this could reduce the uncertainty on its NAV figure, which in turn could lead to a reduction in the discount to its NAV.