HICL Infrastructure keeps dividend target amid weaker performance

HICL Infrastructure reported a first-half income of £10.9m on Wednesday, a substantial decrease from the £125.8m recorded in the first six months of 2022.

The FTSE 250 company said the decrease in income resulted in a total return of -£27.6m, swinging from the positive £102.6m total return reported in the prior year period.

Losses per share stood at 1.4p for the six months ended 30 September, contrasting with earnings per share of 5.2p in the first half of 2022.

Despite the challenges, HICL’s target dividend per share for the year remained stable at 8.25p, consistent with the prior year, while the interim dividend was lowered slightly to 2.06p from 2.07p.

However, its net asset value per share decreased to 159.4p from 164.9p year-on-year, and after deducting the interim dividend, the net asset value per share further dropped to 157.3p.

“The board and I are pleased with the active management of HICL’s portfolio and the solid operating result against a difficult market backdrop,” said chair Mike Bane.

“Continued progress on strategic asset rotation has served to improve portfolio composition while supporting the company’s net asset value.

“This transaction activity, which has been across geographies, sectors and counterparties, gives the board a high level of confidence in HICL’s NAV and reinforces the belief that the company’s shares have been materially oversold by public markets.”

HICL said its portfolio performance during the period met expectations, delivering an underlying return of 8.2%, although it was lower than the 13% recorded in the same period a year earlier.

The decrease in the net asset value per share was attributed to an increase in the portfolio’s weighted average discount rate from 7.2% to 8.0%.

That change reflected higher long-term government bond yields and recent transactions, all valued at or above their respective 31 March valuations.

HICL said it remained active in asset management, with transaction activity totalling £532m during the period.

That included acquisitions worth £208m in the Altitude Infra fibre network in France and the UK’s Hornsea II OFTO electricity transmission assets.

Additionally, divestments totalling £324m occurred, encompassing projects across different sectors and geographies, all selling at or above their respective 31 March valuations.

The company said it intended to use the proceeds from the divestments to reduce its floating rate debt exposure, aligning with its disciplined capital allocation strategy.

After the divestments were completed, the revolving credit facility was expected to have about £115m drawn, resulting in a fund gearing of around 10%.

HICL said its assets benefitted from contractual inflation linkage, leading to increased cash generation.

The dividend cash cover improved to 1.05x, excluding profits on disposals, compared to 1.03x in September last year.

Including profits on disposals, the cash cover stood at 1.35x, a slight decrease from 1.58x in September 2022.

The board reaffirmed its commitment to delivering a target dividend of 8.25p per share for the financial year ending 31 March 2024, as it maintained a focus on disciplined capital management, particularly reducing short-term floating debt.

New investments were being evaluated cautiously, considering the cost of debt and the attractiveness of buying back shares in the current market conditions.

“HICL continues to withstand the volatile macro environment, with solid underlying asset performance and resilient asset valuations as demonstrated by our asset disposals during the period which have sold at a premium,” commented Edward Hunt, head of core income funds at HICL’s investment manager InfraRed Capital Partners.

“The focus on strong balance sheet management informs HICL’s proactive capital allocation strategy, with disposal proceeds used to materially reduce the revolving credit facility.

“The company’s strong track-record of accretive asset rotation stands it in good stead to self-fund its future investment activities, as required, and continue to enhance HICL’s investment proposition for shareholders.”

At 0947 GMT, shares in HICL Infrastructure were up 0.29% at 137p.

Reporting by Josh White for Sharecast.com.