Earnings Review: Skye Shelter Fund, Currently Not A Home For Mega Returns

Skye Shelter funds released its Income Statement for the year ended 31st December 2011 showing a decline of about 49% as revenue dropped from N306.7m in 2010 to N156m for the year. Based on the interim audited accounts released expenses chalked off 43% of Income leaving behind N89.6m in Net Income. Though “total expenses” reduced from N71M in the prior period to N66.8m this year it was worse it terms of efficiency as expenses only chalked off 23% of turnover last year.

The 48.6% drop in Net Income amounted to a Net Income Per Unit of N4.48.A unit share in the company originally cost N100 thus giving shareholder a paltry 4.48% returns on equity. Proposed distribution Is N80.8m or N4.04 per share. The company derives its income mainly from Fixed Income Securities, Asset Disposal and Rental Revenue. Currently the company is yet to release its annual report detailing a breakdown of revenue and cost which would have provided investors with explanations for the massive drop in earnings.

If I were an investor here, I surely will be unhappy and worried with this results as net income has been on the rise for 3years leading to 2011. I will be even more upset that this results were published 8 months into 2012.  As at 2010 the fund had a Net Asset Value per unit of N1.21 down from N1.23 in 2009. This represents an impressive 21% increase in value without taking into consideration dividend distributions. The fund has to date paid its fund holders N480m in distributions and with the proposed payment of N80.8m its lowest since 2008 total payments will top N560.8m. So, investors have benefited 28% of the N2b invested an annualized return of 7%. This is still 2% higher than the average of 5% dividend yield company’s at the NSE pays.But is all this enough to keep your money in the hands of others?

Mutual Funds, I believe should always generate returns 5% above average inflation for it to be worth the risk otherwise value will simply be eroded. Can they acheive this? For example, Sky Shelter Fund will have to generate income of at least N340m year to be at 5% above inflation. That is surely not happening and Net Asset Value at just 21% (last year) over par value isn’t much comfort as that will probably drop to between 16%-18% depending on how the value of investments. This year may be different though due to the high yields fixed income securities generate. But even at that value stagnation or impairment may negate those yields. Fortune may smile on the company in the near future but for now the poor returns gives the company a red bottom line.