HICL Infrastructure 'resilient' as Carillion collapse hits earnings

The FTSE 250 firm reported a net asset value total return of 5.7% for the period, despite the impact of the failure of a “key counterparty” - Carillion - and what the board called a “challenging” UK regulatory environment.

Aggregate dividends declared for the year stood at 7.85p per share, in line with guidance.

The board re-affirmed its 8.05p target for the next financial year ending 31 March 2019, and 8.25p per share for the financial year after that, which it said reflected its confidence in the resilience of the long-term forecast cash flows from the group's portfolio.

The directors' valuation of the portfolio on an investment basis was £2.84bn at year-end, up from £2.38bn at the end of the 2017 financial year.

On the funding front, HICL completed a capital raising of £267.7m in June, followed by a re-financing on improved terms of its £400m revolving credit facility in March.

Four new investments were made in the period across all target market segments for a combined consideration of £473m.

Following the year end, HICL invested a further £35m in accretive investments.

The board said it retained a “clear focus” on delivering value for shareholders, pointing to the strategic divestment of its investment in the Highland Schools PPP project for an attractive price since year-end.

Both the board and its investment adviser were reportedly confident in the outlook for the company, saying they were continuing to focus on preserving and enhancing value from the existing portfolio, while seeking opportunities to optimise performance through a selective approach to accretive investment.

Despite the rosy outlook and solid net asset value performance, the books weren’t quite so friendly, with the company’s income falling to £161.7m from £207.6m, and its profit before tax down to £122.1m from £177.1m.

HICL Infrastructure did indicate it was taking a hit of around £50m from the collapse of Carillion in January.

“We are pleased to report that NAV, total return and cash flows have remained resilient in the face of some challenges during the year, which is testament to the well-diversified nature of the group's portfolio,” said chairman Ian Russell.

“HICL delivered its target dividend for the year, and the board is pleased to re-confirm the guidance of 8.05p per share for the year ending 31 March 2019; and 8.25p per share for the following financial year.”

Russell said the benefits of private investment in infrastructure - including the availability of capital and expert resources, risk transfer from the public to the private sector and long-term and responsible stewardship of community assets - were real, but often overlooked.

“Over the past year, negative political comment in the UK has weighed on the minds of investors as they consider their exposure to the asset class.

“However, we believe that there continues to be a role for private capital to provide critical infrastructure for taxpayers, public-sector clients, regulators and the wider community.”

HICL’s board had “conviction” in the long-term direction of the firm, Russell added, saying shareholders would continue to benefit from the resilience afforded by the group's well-diversified portfolio of investments.

“To this end, we will continue selectively to consider new opportunities which will enhance the portfolio while making prudent use of our borrowing facilities.”

Harry Seekings, director of HICL’s investment adviser InfraRed Capital Partners, said the company’s investment proposition had proven resilient during the year, adding that it was “pleasing” to see value enhancements delivered by InfraRed's asset and portfolio management teams mitigated the impact of “some specific challenges”.

“The portfolio's performance as a whole, combined with the issuance of new equity at a premium in June 2017, helped the company to deliver NAV growth over the year. HICL invested £473m during the year across all of its target markets, which has helped to increase portfolio diversification.

“The board and the investment adviser continue to consider all appropriate options for optimising portfolio performance and managing the company's funding.

“As an example, in April 2018 HICL entered into a commitment to dispose of its interest in the Highland Schools PPP project for an attractive price, generating value for shareholders which, in our view, would not have been achieved by holding on to the investment.”

Seekings said InfraRed was focussed on continuing to build and deliver HICL's differentiated investment proposition, in terms of low single asset concentration risk, strong inflation correlation and predictable, long-term cash flows.

“In particular, despite the impact of counterparty and regulatory risks, resilient cash flows from HICL's diversified portfolio have ensured that dividends remained in line with previously communicated guidance and that cash cover remained solid.”