My holy grail these days is an investment trust that can consistently and safely pay 4% a year while delivering a little capital growth.
In these income straitened times, there is bound to be at a premium charged for that.
In HICL's case the premium has been over 6% since I first bought into the trust at launch. Sometimes the premium has been above 20%. Once it nudged 30%.
Which was patently ridiculous.
I've always been slightly uncomfortable with super high premiums - sooner or later they tend to revert to the norm. And to me, all infrastructure trusts seem to have at least a whiff of financial smoke and mirrors about them!
But this has never struggled to pay out 4-5% a year so I've stuck with it. Plus the share price has grown - although it's gone nowhere for two years.
So yesterday was a dramatic day.
The HICL premium fell to 0.4%. It has NEVER, since launch in 2009, been that low. Which reflects fears that the whole UK PFI edifice might be slowly and messily dismantled.
So is now a good time to buy? Interesting conundrum for those of us who hold this.
Will this fall to a 10% discount?
I can see arguments for variously selling, holding and adding.
The killer question, everything else being equal, is what shape will UK PFI be in, in the future?
Can it regain the thin veneer of fiscal credibility it once had? (Some of the economic arguments whipped up by the current media storm seem pretty damming.)
Will that 'Oh Jeremy Corbyn' song sweep Labour into power?
Politics are the scourge of investing - they make the whole thing feel like a bit of a punt.
So, I know why we have seen a fall of 8% in recent weeks, but arent these discussions by the tories and threats by labour just that. Surely the government needs to keep up on infrastructure projects, and they have no money to do it. Companies like HICL have to provide the capital for them. Longer term this should be safe... No ?
This was written back in June and the share pricehas fallen somewhat since then, so maybe they are re-evaluating their positions.
This extract is interesting :-
""HICLs most recent reported results are a good illustration. Over the year to 31 March 2017 NAV/share grew from 142.2p to 149.0p, excluding dividends paid of 7.6p/share. However, the 6.8p/share growth in NAV included 2.1p as a result of share issuance at a premium and 2.8p as a consequence of an aggregate reduction in the discount rate applied to future cashflows.
Therefore, underlying growth in the value of the portfolio over the year was 1.9p/share; or 1.3 per cent. The dividend paid totalled 7.6p, an attractive yield of 4.5 per cent based on the current share price, but in terms of capital growth over the year HICL delivered a negative real return, once the gains from lowering its aggregate discount rate and issuing new stock at a premium are excluded."""
When you add in the 1% management charge it's real return I guess is even more negative.
This is probably why the share price has fallen so much.
That and the 2nd reason which is the scarcity of quality investments out there, also described in more detail in the article.
And 3rd -- the belief that there is a degree of investor complacency around the potential downside risks to NAV relating to rising risk free rates.
The write down of £25M+ against the troubled Manchester Waste project potentially sets a precedent here.
Looks like JL have accepted a change in conditions here to keep the contract alive rather than go to protrated and expensive legal proceedings.
This simply now allows Manchester Waste to pay a lot less throughout the lifetime of this long term contract.
JL conveniently stated that this is just 1 in 100 projects, however, it's not as simple as that.
As government departments run out of money they will adopt the same tactic on other infrastructure projects and a domino effect could take place.
I think the market will be cautious at best on this news at 8:00AM this morning -- we will see.
"HICL share offer: 4.9% yield at a smaller premium
HICL Infrastructure is on the road with its first retail share issue in nearly four years. Experts say it is a good opportunity for income investors.
HICL Infrastructure (HICL), one of the top-performing investors in roads, schools and hospitals, has launched its first formal fund raising in four years.
The £2.5 billion Guernsey-based investment company plans to raise at least £205 million to complete the acquisition of a US toll road and, subject to investor demand, may seek another £50 million to provide funds for further investments later this year.
In the past three years HICL has used a series of quick tap share issues to raise over £467 million from professional investors. Last weeks announcement of a three-week share offer period for existing and new shareholders, however, gives retail investors their first proper look-in to a share issue since 2013.
HICL, one of a handful of infrastructure funds listed on the London Stock Exchange, has grown quickly since its 2006 launch as investors have poured over £8 billion into the sector, liking the steady, inflation-linked dividends they pay.
Over the past ten years the company has delivered a total shareholder return of 153% and consistently raised its dividend from 6.1p per share to what is expected to be 7.65p in the current financial year to 31 March.
The company generates its income from a portfolio of 114 investments, managed by InfraRed Capital Partners. These are long-term contracts in which it gets paid by governments to operate schools, universities, roads, hospitals and accommodation blocks for staff.
Wealth managers and analysts say HICLs fund raising is likely to be popular as it gives investors a chance to buy the shares below their current trading price.
The offer is priced at 159p, a 4.3% discount to their closing price of 166.2p on Wednesday, the day before the announcement. Although that is 7.9% more than their net asset value (NAV) measured at the end of last year, it still represents a bit of a bargain as the shares currently trade on premium of nearly 14% above NAV.
The lower price means the new shares will yield 4.9%, slightly more than the 4.5% the existing shares offered at Fridays closing price of 165.8p.
HICL pays four quarterly dividends a year and is looking to increase the payout to 7.85p in 2017/18, rising to 8.05p in 2018/19.
Although these are targets and are not guaranteed, the companys dividends are backed by relatively secure cash flows generated by 25-year public-private partnerships (PPP) in the UK. It also has government contracts to run assets in France, Australia and Canada, where HICL runs the headquarters of the E division of the Royal Canadian Mounted Police.
Around £203 million of the money HICL is looking to raise will buy a 33% stake in the Northwest Parkway toll road in Colorado. This is one of four demand-based projects, where the income it receives depends on how much the asset is used, rather than simply making it available for use, as is the case with the bulk of its investments.
Nigel Moore, senior wealth manager at Pilling & Co in Manchester, said the HICL share issue was a good opportunity for income investors.
In our view this does represent a good entry point if investors can access the offer for subscription. The yield is 4.9% due to the target size of £205 million and up to £260 million. I would anticipate the offer will be oversubscribed, he said.
Monica Tepes, investment companies analyst at Cantor Fitzgerald, said in addition to expanding the investor base, the fund raising benefited HICLs existing shareholders because the new shares were being issued a price above their net asset value (NAV).
The placing allows investors, existing and new, to invest at a small discount to the market price and it benefits existing investors as the issue price is at a pre
I do not take the paper, but a friend asked if I saw Saturday (13th Aug) Times. Seemingly there was an article which intimated that ALL infrastructure operations were over priced.
However, it seemingly did comment that HICL is one of the better ones.
I will look on line for the article.
But, are infrastructure companies past their prime? Time to sell and move on?
I'm not sure.
HICL has dropped about 5% in the last month - I'm thinking this might be a buying opportunity, however the FTSE is above 7000 and as such I've become a little cautious about stepping in whilst the FTSE is so high.
Any thoughts on the above or views regarding the recent 5%ish fall?
The Directors of HICL Infrastructure Company Limited announce the results for the six months ended 30 September 2014.
for the six months ended 30 September 2014
· Interim dividends plus uplift in NAV per share contributed to total shareholder return of 9.0% in the six month period.
· Aggregate quarterly dividends declared in first half of 3.62p per share (2013: 3.50p) and on track to achieve the 7.25p per share dividend target for the year to 31 March 2015. Target dividend guidance for the financial year to 31 March 2016 of 7.40p per share.
· Value of the Group's investment portfolio as at 30 September 2014 of £1,639.1m1, up 9.2% from £1,500.6m at 31 March 2014.
· Valuation growth of 9.2%, driven by accretive acquisitions, revaluation of certain investments including an investment the Group has contracted to sell, portfolio performance and a net positive impact from valuation assumptions.
· Net asset value ("NAV") per share (post interim dividend) of 130.5p, up 7.4p (6.0%) from 123.1p at 31 March 2014.
· Three new investments and three incremental stakes acquired during the period for £63.7m funded by £51m equity tap issue in June and drawings under the Group's revolving credit facility.
· Four additional acquisitions of incremental stakes made since the period end for a combined consideration of £103.6m have resulted in a net funding requirement of £104m.
· Continued strong interest in UK PPP/PFI infrastructure investment driving up valuations and making sourcing of similar UK investments more challenging.
· Investment Adviser continues to pursue a disciplined acquisition strategy focused on using its network of industry contacts in the UK and internationally to source new investment opportunities.
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