HICL Infrastructure reaffirms dividend guidance

HICL Infrastructure Company reaffirmed its dividend guidance of 7.85p per ordinary share for the current financial year on Monday, as it updated the market on its year-to-date from 1 April to 21 July.

The FTSE 250 company announced a fourth quarterly interim dividend for the prior financial year on 18 May, of 1.92p per share, which it confirmed was paid on 30 June, bringing the aggregate dividends declared in the year to 7.655p per share.

It said the take-up of the scrip dividend was 2.91% of the ordinary shares in issue, and also declared a first quarterly interim dividend for the current year to 31 March 2018 of 1.96p on 18 July.

HICL’s dividend guidance for the year to 31 March 2019 stood at 8.05p per share.

“The company has made steady progress, with portfolio performance and cash generation in line with expectations since the financial year end,” said chairman Ian Russell.

During the period, the company undertook a “materially oversubscribed” tap issue, which closed on 5 June, following the acquisition of an interest in Affinity Water in May.

In light of the group’s investment pipeline, the board increased the size of the issue to the maximum available £267.7m from the initial target size of £205m.

The board said following the impending completion of the equity interest in HS1, and on the basis of bringing in co-investment of up to £120m of its equity interest, HICL would have a net funding requirement of approximately £140m.

The group increased its revolving credit facility to £400m from £300m on 2 May, with the terms of the facility remaining the same with a margin of 1.70% over LIBOR and expiry in May 2019.

HICL said the banks providing the facility expanded, with Santander ‎joining National Australia Bank, Lloyds Bank, Royal Bank of Scotland, Sumitomo Mitsui Banking Corporation, ING and HSBC in the banking group.

As highlighted in the company's annual results, the board was considering amending the group's hedging policy, which currently targeted a movement of no more than 1% in NAV per ordinary share for a 10% movement in foreign exchange rates.

The board and the investment adviser were reportedly analysing whether it would be preferable from a cost-benefit perspective to target a movement of no more than 2% in NAV per ordinary share for a 10% movement in foreign exchange rates.

It said the outcome of that review would be communicated in November when the company's interim results were announced.

“We were pleased to announce the investment in Affinity Water and also a commitment to invest in HS1,” Ian Russell added.

“Subsequently, £25m of the Affinity Water investment was sold down at completion, which represented an important step for HICL as it builds strategic relationships with aligned long-term co-investors.

“These partnerships create opportunities to work on larger investments and we intend to develop further this strategy on the HS1 investment.”

Russell said the company's principal objective was to deliver long-term, stable returns to shareholders and to preserve the capital value of the portfolio, with the potential for capital growth over the long term.

In an environment that remained competitive, he added that the investment adviser was continuing to prioritise pricing discipline whilst evaluating a number of “attractive opportunities” across HICL's target segments and geographies.

“The inflation correlation of returns from the group's portfolio has increased to 0.8.

“This stands the company in good stead as we expect to continue to see relatively elevated near-term inflation in the UK.

“However, we believe that the assumption for UK inflation carried in the Group's valuation of its portfolio remains appropriate.”