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CVC Income & Growth - Uncertainty creates opportunity

CVC Income & Growth’s (CVC IG; formerly Credit Partners European Opportunities) share price and NAV have been affected by the turbulent markets. The two classes of shares (euro and sterling) are down 6% and 5% over the last 12 months, with NAV total negative returns of 5% and 7%, respectively. At the same time, CVC IG’s asset quality has been holding up and yields have been boosted by the floating rate nature of leveraged loans. At current prices, CVC IG’s portfolio has a yield to maturity (YTM) of 13.8% (euros) and 15.7% (sterling). Current (running cash) yields are 9.1% and 10.9%, which gives space for a dividend increase (current dividend yields are 5.3% and 5.8%) if the board wished to do so. Looking ahead, continued market volatility is likely given the uncertainty regarding inflation, the central banks’ actions on interest rates and the overall impact on economies. However, since most of CVC IG’s assets are senior and secured and leveraged loan recovery rates are typically 60–75%, the market valuation seems to be quite cautious in our opinion.