UK Edition
Questor: how have infrastructure funds fared since we rated them ‘no more than a hold’?
In December 2016 we took a look at infrastructure trusts in light of expectations at the time that the election of Donald Trump would cause interest rates and inflation to rise, potentially making life harder for any investment that produced a relatively fixed income.
Our conclusion was that, while there was some comfort in their inflation-linked income streams and the conservative assumptions used to value some infrastructure funds’ assets, the fact that many traded on double-digit premiums to net asset value left little margin for error.
We therefore saw the sector as no more than a hold for income seekers, with the best bets being John Laing Environmental Assets and Greencoat UK Wind.
Broadly, this relatively cautious view has proved justified. Of the trusts we mentioned in the earlier piece, shares in John Laing Environmental Assets have fallen by 1.4pc, John Laing Infrastructure Fund has lost 6.7pc and HICL Infrastructure has given up 10pc (dividends have, of course, offset some of the share price falls).
Meanwhile, Greencoat UK Wind has gained 6.7pc, but the standout performer has been 3i Infrastructure with its 21.8pc gain.
In general, premiums have fallen. HICL’s premium of 11.7pc at the time of our original article has given way to a small discount of 0.3pc and 3i Infrastructure’s previous 18.4pc premium is now 8.1pc, while John Laing Infrastructure Fund stands at a discount of 3.8pc against a premium of 8.1pc in December 2016, and John Laing Environmental Assets’ premium has fallen from 5.5pc to 5.1pc.
Both HICL and John Laing Infrastructure had exposure to projects run by Carillion, the collapsed outsourcer; this, along with talk from Labour of nationalising PFI projects, hit sentiment towards infrastructure funds. Greencoat UK Wind’s premium has edged up from 9.8pc to 10.1pc.
Partly as a result of today’s more reasonable premiums, our broad “hold” stance for the sector remains. We’ll now look in a little more detail at the two we picked out in our previous note, John Laing Environmental Assets and Greencoat UK Wind.
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John Laing Environmental Assets offers an attractive and growing dividend and is diversifying its assets away from a mixture of solar and wind power plants. The yield is currently 6.1pc and the trust’s target of a 3.2pc increase in the dividend for the year to March 2019 would take it to 6.3pc. The payment was covered 1.2 times by cash flow in 2017-18.
The board intends to increase the dividend in line with inflation in future and 65pc of the trust’s income is linked to inflation.
Over the previous year, it acquired stakes in two anaerobic digestion plants which, according to Numis, the broker, will offer useful diversification, reduced dependence on power prices and better returns than on wind or solar power. Hold.
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Greencoat UK Wind concentrates, as its name suggests, on wind farms. It is an acquisitive fund – it recently raised £119m in a share sale to increase its stake in the Clyde wind farm in South Lanarkshire – but has exhibited “buying discipline” in its purchases so far, said Matt Hose, an analyst at Jefferies, the bank.
The 2018 dividend target has been set at 6.76p, representing a 4.1pc increase. Based on this target dividend, the shares offer a 5.4pc yield.
“The simplicity of the fund’s structure and the strength of its cash flow generation remain its key attractions,” Hose added. “However, the fund’s growing size means we are also likely to start to see some virtuous circle effects in terms of running costs, finance costs and access to investments.” Hold.
Investment trust news
BlackRock Emerging Europe is likely to be wound up after shareholders offered 61pc of their shares for repurchase in a “tender” offer last month. This would shrink the trust’s assets to about £48m, which is deemed to be too small for viability.
- Questor archive: telegraph.co.uk/questor
Macau Property Opportunities, which is being wound up, is to hold a general meeting today at which shareholders will be asked to approve the return of 50p per share via a “compulsory redemption”. The money represents 62pc of the proceeds of the sale of one of the trust’s assets. Questor has so far made a gain of 9.3pc on its tip in January at 183p.