SQN - SQN asset finance income fund

[mattman74]

SQN

Part of John Barons Investors Chronicle Income IT portfolio

An RNS released at 8.26 am today states that they are having problems ramping up energy production at some of their Anaerobic digestion (AD) assets. They are stating a reduction in NAV as a result. Down 15% as I type.

Does anyone follow and/or have any views.

I have a small position

Matt

[HYPMonkey]

I too have a modest position in this as well.

Am following this with interest and I am thinking of disposing it.

If it recovers back to around 80p, then I'll probably offload it for a small loss -- not willing to take the risk with this, given the exposure to AD plant investments.

[Bagger46]

The C shares, SQNX, which are not affected, and have much better divi cover, have taken a hit too, albeit smaller, unwarranted imho. Might buy a few.

Since the drop in SP is at the top end of the RNS range estimate, Mr Market looks to have over corrected. So imho SQN holders should wait and see rather than just dump on bad news.

Bagger

PS Don't hold, but my wife has a few SQNX in her HY ISA. But is fully invested at the mo.

[puffster]

Ouch, I can feel your pain. I had involvement with them but after the Suniva shambles, then snoozebox the position was exited at no small loss. I have slept a lot better since. I think something else happened after snoozebox but I don't recall what. Now this.

My only observation is that these boys are pretty good at picking duds.

Regards, Puffster

[mattman74]

Thanks all.

I’m not jumping ship at the moment - I think the damage is done. HYPMonkey probs called it right. Mr Market will have over reacted.

My Brother in Law (an engineer specialising in renewables) was warning about the AD problems over Xmas.

If they get back to 80p, I’ll probably sell. It is 2% of my portfolio, so only down a v small % of portfolio. Noise really.
With the % yield they were offering - there was always a risk.

Matt

[puffster]

Looks like there is a possibility that SQN could be closed down/put into run-off as apparently the next 3 year continuation vote is in November 2020. See:

https://citywire.co.uk/investment-trust ... w/a1314874

Regards, Puffster

[mickeypops]

I too ducked out after the Suniva issue- glad I did.

[rippleog]

So taking the most recent NAV of 93.68p with the share price at 64p the Anaerobic Digestion plants have effectively been written down to ZERO (AD is 30.2% of portfolio)..Interesting! when you have a green investment Trust LIke the #JLEN that trades at a 21% premium to NAV with 20.5% holding of AD plants.

(holder under water!)

[mattman74]

AD written down to zero - definite market over reaction

But gosh - I would have to be brave to add here.

The management seem too accident prone as was pointed out earlier

I would welcome a fund run off

I’ll just hold and wait and see

Thx all for views
Matt

[langley59]

I have a reasonable position in this and the AD issue came as a bolt out of the blue to me. So much for renewable energy projects!. Its tempting to buy more with the share price in the low 60s but as others have pointed out there is now a confidence issue with management here.

[langley59]

Low 50s now. Despite what I said in my previous post there has to be a point where the NAV, adjusted for a total write off of the non performing AD assets as well as Suniva, becomes a compelling reason to buy, even if the November continuation vote is lost and the fund goes into runoff.

[Bagger46]

Bought some more SQNX today, the C shares, having bought a few on the 'SQN bad news'.

My line of thinking is as follows: The C shares NAV has been recently confirmed at around 98p. The divi is covered. The C shares are NOT invested at all in those AD assets of SQN which are causing the problem. The average investments durations on the C shares is much lower than the SQN shares. No matter what happens next, portfolio taken over or gradual realisation of assets, the C shares should fetch much nearer to NAV than the current very depressed SP. The C assets, which are segregated, should be palatable to some outfit out there. Meanwhile there is a covered juicy monthly divi.

What could go round? Well, the C shares holders could be sold down the river under a future deal, to partially bale out SQN holders. So yes there is risk. But there is ALWAYS risks in markets.

We shall see. I have been right before, and wrong before, as most of us. But I did see one buy bigger than mine today, so there are at least two of us thinking the same way!

Bagger

[Bagger46]

Low 50s now. Despite what I said in my previous post there has to be a point where the NAV, adjusted for a total write off of the non performing AD assets as well as Suniva, becomes a compelling reason to buy, even if the November continuation vote is lost and the fund goes into runoff.

I agree, low 50s does look ridiculously low, there could well be some serious upside on SQN in the future, but in the end I went with SQNX, C shares, because there is potential reasonable upside there, but at a lower risk than SQN.

Bagger

[langley59]

There are a lot of uncertainties here. It was my understanding that the conversion of the C shares into ordinary shares was delayed because of the uncertainty over the NAV of the Suniva investment. This is now presumably compounded by the uncertainty over the NAV of certain of the AD assets. Once these NAVs are determined will conversion go ahead or will the strategic review which is being proposed (with or without a new investment manager) conclude that the portfolios should be run down and conversion will never take place? Then there is the continuation vote in November.

I see what your logic is regarding the C shares. I am concerned however that the management is the same and could similar bolts out of the blue hit the C share portfolio?

In conclusion it is tempting to buy more of the ords or buy into the C shares on the basis that the share prices must be below realisable NAVs and if I had not already got a significant holding I might buy a speculative position. However for now I'm going to await the strategic review and AD valuation report and hope that they keep paying some sort of monthly dividend in the meantime.

[Bagger46]

One of the assumptions I have made is that, in the current circumstances, the much delayed conversion of the C shares is off the table altogether. I cannot think of one C share holder would would vote any other way.

Bagger

[langley59]

You can buy the ords below 50p now!