Strong revenue growth emerging
The highlight of FY19 results was an over six-fold increase in gross portfolio income to USD2.24m, as ongoing repositioning of the investment portfolio moved it closer to the point where it will support sustainable dividends. The period was, of course, pre COVID-19, but ADAM does not expect any material impact on portfolio valuations for FY20. Each investment has a strategy in place to actively manage operational exposure and mitigate the pandemic’s impact.Asia’s SMEs, already lacking access to traditional financing pre-COVID-19, have an even more urgent need for new sources of cash. So one potentially positive consequence is apparent in ADAM’s pipeline of prospective new investments.
ADAM remains relatively well positioned. It has an existing portfolio of diversified pan-Asian investments, access to liquidity to continue to both provide support where required and finance new investment. Since the year end, it has raised another USD1.7m via further subscriptions to its corporate bond issue.
Although economic disruption has yet to play out, China, Hong Kong and other territories relevant to ADAM’s portfolio have reported initial recovery and are gradually lifting lock-down measures. ADAM sees Asian markets benefiting from their experience of previous pandemics (Bird Flu/SARS).
A key short-term catalyst to a higher equity rating is newsflow on progress to bring legacy holdings, such as Chinese dolomite quarry operation Future Metal Holdings (FMHL), back up to full speed.
In the interim, variables and risks appear offset by a sizeable (c.66% discount to underlying NAV/share of 99c), itself based upon a conservative assessment of fair value.
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