Tetragon Financial Group (TFG, Tetragon) achieved a 13.6% NAV/share total return and a 13.4% ROE in FY19, in line with its long-term target of 10–15%. The main driver of Tetragon’s performance was its asset management business (TFG Asset Management), which comprises managers with a total AUM attributable to Tetragon of US$27.4bn and generated an EBITDA of US$59.5m in FY19 (up 51% y-o-y). The late-2019 investment activity left Tetragon with a relatively low net cash position (4.1% of NAV at end-April). The shares trade at a three-year average discount to NAV of 44% (currently at 62.7%), which is relatively wide compared to peers given the company’s track record of delivering a 16% NAV TR pa over the last 10 years. The recent market sell-off has so far resulted in a 5.1% decrease in NAV (ytd to end-April 2020).
The global COVID-19 outbreak has led to concerns over economic growth and has resulted in a widespread selloff. Markets may remain volatile until there is more clarity over the impact on corporate earnings. While many investors turn to safe assets such as sovereign bonds, those looking for ‘bottom fishing’ opportunities may find Tetragon’s diversified alternative portfolio compelling (especially given the wide discount to NAV). Moreover, Tetragon offers exposure to recurring fee income streams from its asset management holdings.
- Strong net returns (10-year NAV performance at 16.3% pa) despite aboveaverage ongoing charges.
- Sustained dividend payment.
- Continuing growth in TFG Asset Management’s third-party assets under management provides fee income and potential capital gains.
Tetragon historically traded at substantially larger discount to NAV than its peers, currently at 63%. We acknowledge though that the full impact of the recent market turmoil has not yet been fully reflected in Tetragon’s NAV and may become more visible in the coming months. Based on the quarterly dividend paid in May, the current share price translates to an annualised 4.6% dividend yield.