Honeycomb Investment Trust plc (LSE:HONY) reported another positive return for its net asset value (NAV) for May, saying its pipeline of opportunities remains strong.
Thanks to a strong pipeline of non-bank lenders keen for funding, its investment manager is able to be selective in the investments it pursues and is also seeing opportunities to increase returns on new facilities as many central banks increase interest rates.
NAV per share at the end of May was 1,032.6p, representing a NAV total return of 0.69% in the month, 3.3% in the year to date and equivalent to 8.1% per annum. This followed NAV returns of 0.66% and 0.64% in the preceding two months.
Returns were driven by the continued strong risk-adjusted yield, which also improved from 8.9% to 9.1% on a risk-adjusted basis, as a 0.2% net release in impairments followed a reduction in arrear balances in the secured consumer portfolio.
Net investment assets ended the month at £586mln, from £592mln the month before, as cash was recycled into several existing senior facilities as borrowers drew down to fund growth in their asset base.
Honeycomb said its borrowers were said to have been adjusting new customer underwriting "to reflect the high inflationary environment with increases in debt service coverage ratios, higher income requirements and higher pricing".
Broker Liberum said: "The credit performance of the portfolio has been excellent since the fund's launch in 2015. HONY’s focus on senior secured loans has helped to drive strong cash generation and maintain a very consistent performance track record.
"The company’s defensive portfolio of asset backed loans to non-bank lenders provides scope to earn enhanced returns and retain underwriting control. HONY's ECL provisions have typically been prudent, particularly when compared with other UK lenders."
Earlier this month Honeycomb shareholders approved the merger with Pollen Street Capital Holdings, the owner of the trust's investment manager, with the Financial Conduct Authority having earlier approved the deal.
Approval means the combined group will move from being an investment trust and become a commercial company, which the board believes to be a more appropriate category to support the combined group's growth strategy.