Thursday newspaper share tips: HICL and residential property

Shares in boring and mostly UK-focused investment fund HICL Infrastructure Company are worth holding on to, says The Daily Telegraph's Questor column, citing its income-play appeal.

HICL raises money from investors and then buys infrastructure assets around the world, such as hospitals, schools and police stations.

The advantage of this approach was that it was not vulnerable to the construction risk of investing in new schools and hospitals, instead only buying them once they were finished.

"The revenue stream is highly predictable as the contracts are long term and in many cases government backed," said Questor, adding the quarterly dividends it pays rise with inflation.

HICL raised £178m in the year to end-March, and spent £231m on new assets. It upped the value of its portfolio to £2bn by the end of the financial year.

Net asset value per share rose 4% to 142.2p over the same period. That meant investors earned about 13p a share, a return of 9.6% a year, once all four quarterly dividends were totted up.

Management was confident enough to set a dividend target of 7.65p for the year ahead, and 7.85p to March 2018. That guaranteed inflation-linked dividends on a yield of 4.7% for the next two years, noted Questor.

"Investors should be aware that the value of infrastructure assets have been rising due to falling costs of debt, and were we to experience a prolonged period of rising interest rates and bond yields then asset values would fall," the column added.

"That said, the shares, trading at a 14% premium to their underlying value, are a good bet for income. Hold."

Meantime, the Financial Times’ Lex column descended on the performance dichotomy between between house builder and estate agents in the centre-stage UK residential property market.

"Estate agents' shares are drooping and the outlook is uncertain. By contrast, house builders appear slightly embarrassed by their rampant profitability," the column asserted.

It cited several reasons for this, key among them estate agents' exposure to London where heady prices, and regulatory and fiscal changes had curbed appetite for trophy bricks-and-mortar dwellings.

This, Lex said, was bad news for Foxtons and Countrywide, which were more focused on the UK capital than house builders whose approach was more geographically diverse. Moreover, their margins were under the cosh of competitive pressure.

Again in contrast, "margins and returns on assets at house builders have rarely been higher; land costs are subdued, selling prices have risen, while a reluctance to crank up volume has kept input costs under control," the column said.

The mortgage-guarantee version of the government's Help to Buy scheme had, across the house-building industry, subsidised more than a third of sales. For some sector players the ratio was closer to half.

Lex further argued that while the industry has pledged to double output from 2010 levels by 2019, Taylor Wimpey had unveiled a £300m special dividend and emphasised capital discipline over volume growth.

"Help to Buy has brought windfalls for investors but also raised the political risk attached to builders," said Lex.

"Maybe that is one reason that their shares, while outperforming agents', are basically flat over the past year."