Kate Marshall 18 November 2016
Kate Marshall, Investment Analyst, reports on our view of HICL Infrastructure Company Limited following its recently released half-yearly results.
- Income-paying infrastructure investments remain popular in a low interest rate environment
- NAV total return of 2.5% and share price total return of 10.4%
- Trust on track to pay total annual dividend of 7.65p per share, a year-on-year increase of 2.7%
- Ongoing charges fell marginally to 1.08% (on an annualised basis)
HICL focuses on ‘public assets’ with some form of government backing and revenues which rise in line with inflation. The trust delivered a solid return for investors over the six month period to 30 September 2016 and performed in line with the management team’s expectations. Demand for infrastructure investments paying a stable income in the current low interest rate environment remains high. This has been positive for the performance of the trust, although the team are mindful this means it is now more challenging to find new, attractively-valued investments.
HICL is managed by an experienced and well-resourced team, who employ a robust and disciplined investment process. The diverse portfolio could appeal to investors whose main priority is to generate income from their investments, although please note dividends are variable and are not guaranteed. Investors should note at the time of writing the trust trades on a significant premium to NAV of 14.6% compared with a 12 month average of 12%.
|Annual Percentage Growth|
Nov 11 -
Nov 12 -
Nov 13 -
Nov 14 -
Nov 15 -
|HICL Infrastructure Company Limited||15.0||12.5||18.1||10.1||15.4|
Past performance is not a guide to future returns.
*Source: Lipper IM to 01/11/2016
The trust felt minimal impact from the UK’s decision to leave the EU. Weaker sterling strengthened the value of the trust’s overseas investments, although the gain was materially offset by currency hedging, which is designed to mitigate the impact on the value of the trust from foreign exchange volatility.
While the long-term consequences of the EU referendum result remain uncertain, some economic commentators expect higher inflation in the near term. In the team’s view, a short-term rise in inflation may result in a small improvement in the trust’s performance.
The trust’s strategy remains focused on three market segments: PPP (social and transportation projects), regulated assets (gas and electricity transmission and distribution, and water utilities) and demand-based assets (such as toll road concessions and student accommodation).
Four investments and one follow-on investment (adding to an existing asset) were completed during the period, including an acquisition of a 30% interest in the M1-A1 Link Road and a 60% shareholding in the Ireland Primary Care Centres Project. Contracts were also signed for a further four new investments and two follow-on investments. The contract to acquire an interest in the A63 motorway in France remains subject to a small number of conditions outstanding and is expected to complete in early 2017. No disposals were made during the period.
The current portfolio consists of 112 infrastructure projects spread across a variety of sectors. The team aims to maintain a broad spread of investments with no one project dominating the portfolio. 83% of the portfolio is invested in the UK with the remainder invested in Canada, Australia, the Netherlands, France and Ireland.
Infrastructure investment trusts have proved popular with income-seeking investors in recent years. The yields on offer have looked attractive in an environment where ultra-low interest rates have driven down the income available on cash deposit, although yields are variable and not guaranteed. This has driven asset prices higher, which could pose a challenge for the team sourcing attractive new investments.
That said, the management team believe their aim to deliver sustainable, long-term income to shareholders, while preserving the capital value of the portfolio, remains attractive against a backdrop of challenging economic conditions and market volatility in the UK. While investments in the UK continue to form the core of the trust, the team will also continue to seek new investment opportunities in Europe, North America, Australia and New Zealand.
Please note the trust has the ability to use derivatives and gearing (borrowing to invest) which, if used, increases risk. Potential investors should ensure they are comfortable with the risks, details of which can be found in the latest annual reports & accounts along with the charging structure.View the HICL Infrastructure Company Limited factsheet
The information in this article is not intended to be advice or a recommendation to buy, sell or hold any investment mentioned, nor is it a research recommendation. No view is given as to the present or future value or price of any investment, and investors should form their own view in relation to any proposed investment.
Investments and income can fall as well as rise in value so you could get back less than you invest. Past performance should not be seen as a guide to future returns.