SEQI Reports Strong H1 2025 Performance with NAV Growth and Robust Dividend Cover

Credit quality: resilient core, small problem tail

Non-performing loans (NPLs) have been reduced to 0.6% of NAV, with no new NPLs in the period. Around 15.4% of assets are under enhanced monitoring, broadly stable year-on-year. The largest individual exposure remains Active Care Group (6.6% of the portfolio), where post-restructuring progress is encouraging but the position stays on watch.

• Portfolio tilt: operational assets 88.3%, senior secured debt 57.2%, a weighted average equity cushion of 38.1%.
• Two legacy issues linger: an unnamed asset under legal proceedings (~0.5% of the portfolio) and a US private school loan (~0.1%) marked down after budget-driven tenant risk.

For anyone new to the terms: NPLs are loans where borrowers are not meeting contractual payments; senior secured means loans rank first in the capital stack and are secured on assets; “equity cushion” is the equity layer below the debt that helps absorb losses.

Busy balance sheet: heavy prepayments, swift redeployment

Prepayments were unusually high at £226 million, as borrowers refinanced in buoyant loan and bond markets. SEQI leaned on its revolving credit facility (RCF) to bridge timing, peaking at £114.5 million drawn in July and ending the half at £33.2 million. Cash closed at £84.9 million.

New origination of £213 million came in at an 8.9% weighted average yield-to-maturity. The invested portfolio sat at 96.6% of NAV at the half-year end, and 112.5% including investments in settlement, showing an active push to minimise cash drag.

Jargon watch: the RCF is a short-term credit line, useful for smoothing deployment and keeping the fund fully invested.

Discount to NAV: buybacks help, sentiment still stings

The discount widened to 16.8% despite buybacks of 17.0 million shares at a total cost of £13.2 million during the period. Since July 2022, 230.1 million shares have been repurchased, adding 1.93p to NAV per share since inception of the programme.

Share price total return for the half was an annualised 7.7%. The Board is clear that tackling the discount is a priority, but they also caution against shrinking the fund too far – scale matters in private debt for sourcing and diversification.

Rates, regions and re-risking: positioning into H2

SEQI is set up for easing short-term rates combined with a “higher-for-longer” backdrop for long yields. With 61.7% fixed or hedged, income is supported if base rates fall. Modified duration is 2.1, so interest rate sensitivity is contained.

Geographically, US exposure eased to 41.1% from 45.8% on policy uncertainty and tighter spreads, while European exposure increased (European jurisdictions up from 23.5% to 28.0% during the period). The US remains the largest market but with a focus on less policy-sensitive areas like grid infrastructure, digitalisation and utilities.

The pipeline is healthy at around £350 million, with current opportunities screened at roughly 9% expected yields, in line with the fund’s target return band.

Risks and watch items

• Discount risk: sentiment toward listed alternatives remains fragile; buybacks help but can’t fix the sector alone.
• Credit tail: small but real exposure to legacy problem loans; continued recovery work is key.
• Prepayment churn: great for fee income and reinvestment, but requires constant origination to avoid cash drag.
• Macro: an abrupt shift in rates or spreads could delay some “pull-to-par” gains, though hedging and shorter maturities help.

My take: value on offer, execution still the differentiator

On the numbers, this is a solid half. NAV grew, income was steady, and credit held up. The 8.8% headline yield is fully cash covered, and the portfolio pulls in a 9.7% yield-to-maturity with a clear plan to protect income if rates fall. Add the quantified 3.1p per share pull-to-par potential through 2028, and there is sensible visibility on NAV accretion, absent new credit losses.

The fly in the ointment remains the 16.8% discount. If you believe the NAV, that discount plus the yield is an attractive combination. The trade-off is accepting the usual private credit risks and the sector’s current popularity problem. For patient income investors, I think the risk-reward stacks up.

What to watch in H2

• Dividend cover moving above 1.0x as deployment of recent repayments beds in.
• Pace and pricing of new originations from the £350 million pipeline.
• Further progress and optionality at Active Care Group (6.6% exposure).
• Discount management: cadence of buybacks versus maintaining fund scale.
• Fixed-rate share of the portfolio and swap strategy as the rate-cutting cycle evolves.

Bottom line

SEQI is doing what an infrastructure debt trust should do: collect interest, protect capital, and recycle into better risk-adjusted opportunities. If sector sentiment improves or buybacks keep chipping away, today’s discount could be a meaningful part of future returns. For now, this looks like steady execution with a clear plan for the rate path ahead.