HICL Infrastructure: July 2025 update

• InfraRed Capital Partners, the trust’s manager, has over three decades of experience in the industry.

• The trust aims to provide a sustainable income for investors over the long term and has reconfirmed a dividend of 8.25p per share for 2025 and hopes to increase the dividend in future years

• Compared to 2024, the trust’s net asset value (NAV) has fallen by 3.22% and its discount to NAV has widened

How it fits in a portfolio

HICL Infrastructure plc aims to provide investors with a stable, sustainable income over the long term, along with some capital growth. It invests in infrastructure assets that are vital to communities, covering sectors like transport, utilities and healthcare. Some of the sectors it invests in are in demand no matter what’s happening in the economy, meaning their prices normally increase – often in line with inflation – without affecting demand too much.

The trust could diversify an income-focused investment portfolio, as well as provide some protection against inflation. Investors in investment trusts should be aware the trust can trade at a discount or a premium to its net asset value (NAV).

Manager

InfraRed Capital Partners, or InfraRed, is the investment manager for HICL Infrastructure plc. It’s responsible for the trust’s day-to-day management and been investing in infrastructure since the late 1990s. Edward Hunt, Head of Core Income Funds, leads the InfraRed team and is supported by a team of over 100 infrastructure professionals.

As with any investment trust, there’s also a board that oversees the company management for its shareholders. Hunt is the bridge between the investment team and board, so engagement remains open and collaborative. With seven members the board has a broad range of financial and investment experience which should ensure it’s able to hold the trust managers to account.

Process

The trust mainly focuses on the UK, which makes up 66% of its assets, with the rest invested across Europe, North America and Australia/New Zealand. In keeping with HICL’s vision, the managers invest in core infrastructure, which features assets that are essential to economies and societies. This includes anything from network assets like water and electricity, to transport assets, including rail networks and motorways. The managers believe that investing in assets playing such a significant role in the well-being of communities can drive sustainable income for investors over time. But it also helps to provide steadier, more reliable returns from their investments. Though there are no guarantees.

The trust can be broken down into three main buckets - Public-Private Partnerships (PPP) Projects, Demand-based Assets and Regulated Assets.

PPP Projects are where companies and government work together to build, maintain and fund public services, such as schools, roads or hospitals. PPP Projects made up over half the trust as at the end of March 2025 and are generally considered lower-risk investments. This is because they’re backed by the government and the revenues are contracted in advance, though when it comes to investment there’s always risk involved.

An example of a PPP Project in the trust is Southmead Hospital in Bristol. This is a major 832-bed acute hospital providing accident, emergency and specialist medical services to a population of almost one million people in Bristol, South Gloucestershire and North Somerset. It makes up 3.9% of the trust.

Demand-based Assets provide a useful balance to PPP Projects as they’re generally less sensitive to certain political or regulatory risks but are typically more impacted by the state of the economy. The two biggest demand-based assets in the trust currently are the A63 Motorway and London St Pancras High Speed (formerly known as HS1). These make up 7.6% and 4.9% of the trust respectively.

Regulatory assets are infrastructure assets that are deemed essential, such as water or gas utilities. Affinity Water is the largest asset in this part of the trust (and in the trust as a whole), making up 10.8% of it at the end of March 2025. This is a water-only company and doesn’t get involved in sewage, which means it hasn’t suffered the same woes as some of the larger water companies.

Regulatory assets are needed regardless of what’s happening in the economy. As a result, their prices can normally be increased – often in line with inflation – without affecting demand too much.

The trust completed two sales during the year. These were Northwest Parkway and half of the Hornsea II investment. Together they generated proceeds of £244m for the trust. Both were sold at a higher price than the trust had listed them at on their accounts. The money raised from these sales was used mainly for share buybacks.

The trust has the flexibility to use derivatives and gearing both of which can magnify any gains or losses. Investors should be aware that if used, both can increase risk.

Culture

HICL Infrastructure plc launched in 2006 and was the first infrastructure investment company to be listed on the London Stock Exchange. HICL delegate the day-to-day management of the trust to InfraRed Capital Partners. InfraRed has invested in, and managed, core infrastructure assets for over 25 years. From offices in London, New York, Sydney and Seoul, InfraRed actively manages over 300 infrastructure projects, with $13bn under management in private and listed funds.

ESG integration

Investing sustainably is central to HICL and InfraRed's culture. The managers ensure each company they invest in takes responsibility for its environmental, social and governance (ESG) impacts, risks and opportunities. They want to see companies with a clear social purpose, with a desire to positively impact the environment now and for future generations, and the drive to benefit the communities where their infrastructure is located.

Infrastructure, as an asset class, is often naturally compatible with sustainable investing. HICL actively contributes to the United Nations Sustainable Development Goals through the delivery of reliable and resilient infrastructure that supports economic development and human wellbeing. They publish an annual sustainability report which can be found on their website.

Cost

The ongoing annual charge over the trust’s financial year to 31 March 2025 was 1.10%, slightly lower than the 1.14% figure for the previous year. Investors should refer to the latest annual reports and accounts, and Key Investor Information Document for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 p.a. for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn't apply if held in a Fund and Share Account or a Junior ISA. As investment trusts trade like shares, both a buy and sell instruction will be subject to our share dealing charges within any HL account except online deals in a Junior ISA.

Performance

Since the trust launched in March 2006, it's delivered good returns to investors, though at times there have been periods of volatility.

For example, the trust held up well during the Covid pandemic and delivered strong returns, owing primarily to the defensive nature of the infrastructure assets it invests in. But performance hasn’t been as strong in recent years.

Over the trust’s most recent financial year (to the end of March 2025), the trust’s NAV fell by 3.22%. While the assets in the trust performed in line with expectations operationally, their valuations decreased as bond yields rose, making future cash flows less valuable and impacting the overall valuation of the assets today. The trust’s share price fell 4.52% over this period which is behind the average returns from peers in the AIC Infrastructure sector. Past performance is not a guide to the future.

The fall in the trust’s share price means it’s now at a significant discount to the value of the underlying assets in the trust. As at the end of March 2025, the shares of the trust were trading at a discount of 20.38% to the value of the underlying assets. To put this in context, the trust has traded at a premium throughout most of its life, and over the last 10 years has traded at an average premium of 1.85%.

The growth assets in the trust performed strongly, and in particular Affinity Water, which was the main driver of performance. The outcome of the water regulator’s latest price review has been positive for Affinity Water and has resulted in a sizeable increase in its valuation.

Fortysouth, a leading independent mobile tower operator in New Zealand, also performed well and outperformed the manager’s expectations. It’s reduced costs and is investing to grow the size and earnings potential of its network.

However these positives were offset by a higher discount rate reducing the valuations of the assets in the trust. The discount rate is the rate used by the managers to value the future cashflows of the trust’s assets. As long-dated government bond yields have risen significantly, the discount rates used for each asset have increased. This means that the overall valuation of the trust’s assets have fallen.

The managers declared a full year dividend at 8.25p per share, the same as the previous year. They’ve reconfirmed they hope to increase it to 8.35p per share for the financial year ended March 2026 and given guidance that they hope to increase it to 8.50p per share for the financial year ended March 2027. This is only an aim, however, and may not be achieved.

While the income is lower than some peers, the managers want to keep it sustainable for investors as well as improve the trust’s underlying cash flows, which will help improve its dividend cover. At the time of writing, the trust yields 6.69%, although yields are variable and not a reliable indicator of future returns.