Big dividends from SME funder GLI Finance is a provider of loan financing to small and medium-sized businesses in the US and UK. Historic and forecast dividends make the company one of the highest yielding shares on AIM today. After first coming to AIM as T2 Income Fund in 2005, the company was renamed Greenwich Loan Income Fund (as in Greenwich, Connecticut) in 2009. To better reflect the more geographically diverse nature of its lending activities, the name was changed again in April 2013 to GLI Finance Limited.
goal is to become a unique SME financing business With companies still complaining of the difficulty of achieving bank finance, lenders such as GLI have moved to meet the demand. GLI does this through its relationships with a number of lending platforms, each having a particular focus. For example, fundingknight.com is a public platform for UK SME lending and borrowing. Once the relevant checks have been passed, anyone with a UK bank account can be a lender through fundingknight. Businesses applying for funding are then given a rating by fundingknight, with loans to apparently riskier businesses
paying more interest. Like many such platforms, a lender’s funds are spread across a portfolio of borrowers, reducing the risk of wipeout. Other GLI platforms offer invoice discounting, where cashflows are provided in exchange for the lender becoming the payee of the business’ debtors. GLI’s ambition is to re-orientate the business away from simply being an owner of loans originated by third parties, to becoming both an SME lender itself and an equity owner of the lending platforms conducting SME financing. The goal is to become a unique SME financing business by ‘combining traditional SME finance disciplines with the fast-growing online alternative finance providers, many of whom would be described as “peer to peer” (“P2P”) or marketplace lenders.’ GLI is keen to stress that the platforms that it takes a stake in are complimentary to traditional bank lending rather than competing. That is important because if appetite for SME lending did return among the mainstream banks, they could quickly undermine the next-generation lending platforms. GLI believes that cultural changes in the banking sector toward an exclusively quantitative approach to lending decisions (computer says no)
make it impossible for many young SMEs to borrow. Furthermore, new capital rules are forcing banks to hold more reserves against certain types of lending. GLI is keen to point out that neither of these are short-term trends: both would take many years to reverse.
GLI Finance looks a remarkable proposition Having paid a 5p dividend last year, GLI again declared a 2.5p payment at the six month stage. GLI Finance looks a remarkable proposition: a high-yielding AIM share operating in a fast-growing industry. Unfortunately, as a lending company, shares in GLI Finance would likely not qualify for Business Property Relief and would attract inheritance tax if they were part of an estate.
GLI Finance (LON:GLIF) FOR Operations in sweet spot Huge yield AGAINST Banks could up competition Platform business v. competitive Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high
£82m 57.75p:58.5p 12.9 8.9% 50p:63p
Published on Dec 8, 2014