August 30, 2021
In United States dollars (except where it is indicated otherwise)
Sygnus Credit Investments Limited, for the year ended June 30, 2021, reported Interest Income of US$8.22 million, a 53% increase on the US$5.38 million recorded in 2020. For the quarter, Interest Income rose 73% to US$2.60 million (2020: US$1.50 million).
The Company also reported Fair Value Gains of US$1.42 million (2020: US$74,640). Management noted “the increase of US$1.34 million substantially reflected the addition of two new fair valued private credit investments amounting to US$8.70 million and accounted for ~85% of the increase in fair value gains. The larger of the two new investments has a guaranteed rate of return that was significantly discounted and accounted for >60.0% of the overall increase in fair value gains. SCI’s fair valued private credit investments are structured to capture additional upside returns in addition to the regular interest income.”
Fee income amounted to US$62,786 (2020: US$7,000) for the year under review. Sygnus also booked gain on sale of investment of US$24,175 for the year ended June 30, 2021 (2020: nil).
As such, Sygnus reported year end revenue of US$7.93 million compared to US$4.57 million. For the quarter, Sygnus booked revenue of US$3.70 million versus US$975,649 for the quarter ended June 31, 2020. “Ninety-nine percent of core revenues was comprised of net interest income. The growth of net interest income primarily reflected a record growth in net investment commitments to well managed middle-market Caribbean businesses, to meet their substantial demand for flexible debt capital. This outcome was in keeping with SCI’s view that the greatest demand for flexible capital typically occurs during periods of economic crisis, as was discussed in SCI’s 2020 annual report and again in its APO prospectus in December 2020. It is also consistent with the growth trends seen in the more developed private credit markets across the globe,” as per Management.
Total Expenses for the year amounted to US$2.87 million, a 10% increase relative to US$2.62 million recorded for the corresponding period in 2020. Total expenses for the quarter amounted to US$933,429 relative to US$297,400 for the same quarter of 2020. The Company noted that this increase in expenses, “was driven primarily by higher management and corporate services fees related to higher assets under management, first time performance fees and some one-off expenses. Management fees, corporate services fees and performance fees were a combined 76.0% of operating expenses.” Of expenses:
Management fees amounted to US$1.46 million (2020: US$1.01 million). Sygnus noted that, “Management fees are charged at a rate of 1.9% of assets under management.”
Other expenses for the period amounted to US$654,817 (2020: US$388,048).
Loss on sale of investments was $8,370 for the year ended June 2020.
Performance fees amounted to US$349,514 for the period under review.
Net foreign exchange loss totalled US$72,988 (2020: US$1.04 million).
Corporate services fee totalled US$265,663 (2020: US$75,910).
Impairment Allowance on Financial Assets for the year amounted to US$69,710 versus US$101,593 for 2020. Regarding Impairment Allowance on Financial Assets, the Company noted that “SCI continued to experience a nil annual loss rate, with zero realized credit losses or charge-offs on its private credit investment portfolio for a 16th consecutive quarter since inception. The impairment allowance is a non-cash unrealized charge, and reverses if an investment is exited without any realized losses or charge-offs. The smaller increase in impairment allowance for FYE Jun 2021 reflected a combination of successfully exiting some investments from FYE Jun 2020 without any realized losses during FYE 2021 and adding new investments with additional downside protection during FYE Jun 2021. SCI’s non-performing investment rate (NPI) for FYE Jun 2021 was 2.8% vs 2.7% for FYE Jun 2020. This represented 2 Portfolio company investments vs 1 Portfolio Company investment last year, with 1 new investment added to NPI during Q3 2021. However, this new NPI is expected to be extinguished shortly, as SCI, in partnership with the Portfolio Company, is finalizing the process to successfully exit this investment without crystalizing any credit losses or charge-offs, as the investment will be fully repaid. Both NPI’s are fully collateralized.”
Moreover, Management indicated, “the increase in professional fees primarily reflected one-off consultant fees for several different projects. Higher registration fees reflected the listing of the APO shares on the Jamaica Stock Exchange, while higher irrecoverable tax reflected higher usage of taxable repo instruments from APO proceeds, relative to last year.”
Pretax profit for the year of US$5.06 million was booked for 2021, relative to US$1.95 million in 2020, a 159% increase year over year. For the quarter the Company booked pretax profit of US$2.77 million compared to US$678,249 for the same quarter of 2020.
After a taxation charge of US$30,010, (2020 taxation credit: US$18,416), Sygnus booked profits of US$5.03 million (2020: US$1.97 million). Whereas, for the quarter, net profits amounted to US$2.77 million (2020: US$678,249).
Total comprehensive income for the year ended June 2021, amounted to US$5.03 million (2020: US$1.97 million).
As a result, earnings per share (EPS) for the year amounted to US$0.0086 (2020: USD$0.0033). EPS for the quarter amounted to US$0.0047 (2020: US$0.00115). The number of shares used in our calculations amounted to 590,975,463 units. Notably, SCIUSD and SCIJMD closed the trading period on August 27, 2021 at a price of $13.06 and $15.02 respectively. Both SCIJA and SCIUS closed the trading period on September 16, 2021 at US$0.13 and US$0.13.
Moreover, Sygnus highlighted its Portfolio Company Investment Commitments stating, “SCI originated and financed new investment commitments valued at US$41.10 million during FYE Jun 2021 vs US$54.73 million in FYE Jun 2020, gross of investment exits and amortizations. The relatively lower level of gross investment commitments reflected a more measured approach to deploying capital, given the onset of the COVID-19 pandemic. However, this more measured approach resulted in a record US$27.62 million growth in net investment commitments, taking into consideration new investment commitments less the value of investment exits. New investment commitments were primarily used by Portfolio Companies for business expansion, acquisition financing and to pursue growth opportunities. Less than a quarter of investment commitments were used for working capital purposes.”
Regarding allocation by Industry and Country of Incorporation, “SCI’s Portfolio Companies were diversified across a record 11 major industries at FYE Jun 2021, up from 10 last year. Excluding Dry powder, the top four industry allocations were Financial (21%), Hospitality (16%), Infrastructure (14%) and Manufacturing (14%). Industry allocation remained substantially below the 35% target concentration level but will likely increase as economic recovery within the Caribbean gathers pace. SCI’s regional footprint remained diversified at 7 Caribbean territories at FYE Jun 2021, the same as last year. The Company had its first investment exposure to Montserrat during the financial year, which it successfully exited prior to year-end. Portfolio Companies from Jamaica accounted for the highest allocation of SCI’s Portfolio at 50%, followed by St Lucia at 17% and the SSS Islands (Saba, St Martin and St Eustatius) of the Dutch Caribbean at 14%.”
Management also noted that, “At FYE Jun 2021, the weighted average tenor of Portfolio Company investments remained flat at 2.1 years, while the weighted average fair value yield increased to 12.7% vs 12.3% in FYE Jun 2020. The increase in yield was driven exclusively by investments deployed during the fourth quarter, which had an average yield above 12.0%.”
Balance Sheet Highlights
As at June 30, 2021, Sygnus’ total assets amounted to US$87.87 million, a 44% increase on 2020’s assets base of US$61.04 million. This was due to an increase in ‘investments’ to US$80.51 million (2020: US$51.55 million). However, ‘Securities purchased under resale agreements’ declined by US$2.50 million to US$0 for the period under review. Cash and Cash Equivalents fell to US$1.03 million as at June 30, 2021 from US$3.01 million as at June 30, 2020.
Total Stockholders’ equity as at June 30, 2021, closed at $66.74 million, relative to $37.67 million for the corresponding period last year. This resulted in a book value per share of US$0.11 compared to the value of $0.06 as June 30, 2020.
Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view (s) expressed by that research analyst in this research report.
Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.