Initiating Coverage on Clime Capital Limited (ASX: CAM)

November 10, 2021

Clime Capital Limited (ASX: CAM) is a Listed Investment Company (LIC) with a long history, with the Company listing on the ASX in February 2004. The portfolio is managed by Clime Asset Management Pty Limited, a wholly owned subsidiary of Clime Investment Management Limited (ASX: CIW), an ASX-listed asset management company with $1.18b funds under management (FUM) and $5.1b funds under management and advice (FUM&A) as at 30 June 2021. The Company’s primary objective is to provide an above market yield. In addition to this the Company seeks to provide superior risk-adjusted returns to the benchmark index (ASX All Ordinaries Accumulation Index). The Company provides exposure to a portfolio that can be broken down into three sleeves: (1) Australian equity exposure; (2) Unlisted fixed income; and (3) Cash. The portfolio will predominantly provide exposure to an all cap Australian equities portfolio. Typically 50%-70% of the portfolio will be invested in ASX 100 stocks and 30%-50% will be invested in stocks outside the ASX 100. Up to 17.5% of the portfolio will be invested in a portfolio of unlisted fixed income securities. The fixed income portfolio is designed to meet the interest payment requirements of the Convertible Notes as well as provide additional income to the portfolio. The Manager has the ability to hold cash in the event attractive investment opportunities cannot be identified. While there are no mandated limitations, the Manager will typically hold no more than 30% cash at any given time. The portfolio will comprise 35-55 securities. Since July 2014, the portfolio has had an average of 49 securities. The Manager is paid a management fee of 1.0%p.a of the gross assets of the Company and is eligible for a performance fee of 20% of the outperformance of the ASX All Ordinaries Accumulation Index, subject to performance being positive.

Independent Investment Research (IIR) has initiated coverage on Clime Capital Limited (ASX: CAM) with a Recommended rating. CAM has delivered on its primary objective of delivering an enhanced grossed up yield to the broader market and is one of the few LICs that provides a quarterly dividend to investors. There has been significant changes in the underlying exposure of the portfolio over the life of the Company with the Manager having a relatively open-ended mandate contributing to the Company not achieving it’s secondary objective of generating superior risk-adjusted returns to the market. Given this, CAM is for income focused investors seeking an enhanced yield with the Company not an appropriate investment for those seeking a portfolio that is going to generate capital returns above the broader market. This is reflected in the limited payment of performance fees to the Manager. The Company has traded in a relatively narrow premium/discount to NTA band given its size which is a positive for investors and can be attributed to the yield offered, the Convertible Notes and a relatively loyal shareholder base that has received increased dividends through numerous bonus share issues. We note that there are some risks surrounding the upcoming maturity of the Convertible Notes. In the event the restructure is not approved and a large amount of the Notes are redeemed at face value at the upcoming maturity date, this may result in some volatility in the share price and an expansion of the discount.

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