Portfolio

HICL Infrastructure reports solid first half cash flow generation

By Josh White

Date: Wednesday 22 Nov 2017

HICL Infrastructure reports solid first half cash flow generation

(ShareCast News) - HICL Infrastructure Company posted its interim results for the six months to 30 September on Wednesday, reporting that its portfolio achieved "good cash flow generation" and an annualised total return ahead of expectations.
The FTSE 250 firm said its net asset value per share stood at 151.6p as at 30 September, up slightly from the 149.0p as at 31 March.

Its annualised net asset value total return was 8.9% for the period.

The board said the company remained on target to deliver aggregate dividends of 7.85p per share for the current financial year, and it reaffirmed its 8.05p target for the next financial year to 31 March 2019.

It also issued new dividend guidance for the financial year to 31 March 2020 of 8.25p per share, which it said reflected its confidence in the forecast cash flow performance of the group's portfolio.

The directors' valuation of the portfolio on an investment basis at 30 September was £2.84bn, rising from £2.38bn at 31 March.

Two new investments in the period were made in a regulated asset - Affinity Water - and a demand-based asset - High Speed 1 - for a combined consideration of £452m.

The company said it was continuing to play its part in providing "proven capital" for investment in long-term, critical infrastructure throughout the economic cycle.

"I am pleased to report that the company delivered a solid performance in the six months to 30 September," said chairman Ian Russell.

"The portfolio achieved good cash flow generation and an annualised total return of 8.9%, ahead of expectations."

Russell said the company's strategy was to maintain a disciplined and proactive approach to investment and asset management, whilst executing its three-pillar business model of both preserving and enhancing the value of the existing portfolio, and making accretive new investments.

"As at 30 September, 80% by value of HICL's portfolio and approximately 90% of its shareholders were located in the UK.

"Our shareholders include local authority and corporate pension funds, and a large number of retail investors.

"The board recognises that heightened political uncertainty in the UK is a key concern for the company's shareholders."

Russell added that the private sector played a "key role" in the efficient delivery and management of infrastructure assets.

"Western economies face ever-pressing financial challenges posed by ageing societies, technological change and, in the UK, population growth.

"The board is confident that HICL will continue to play its part in providing proven capital for investment in long-term, critical infrastructure throughout the economic cycle."

Looking at the books, HICL Infrastructure's income for the period was £108.1m, up 8.6% year-on-year, while its profit before tax was ahead 2.6% at £87.8m.

Earnings per share stood at 5.1p, a 16.4% decrease on the 6.1p reported a year ago.

"HICL's portfolio uniquely combines low asset concentration risk, strong correlation between portfolio returns and inflation and long-dated, predictable cash flows," commented Harry Seekings, director of infrastructure at HICL's investment adviser, InfraRed Capital Partners.

"Investments in PPP projects represent 74% of the portfolio by value as at 30 September 2017, and overall continue to perform well.

"The group's existing demand-based assets have also seen good performance, with traffic and revenue of the two toll road investments, Northwest Parkway and the A63 Motorway, ahead of assumptions made at the time of acquisition."

Seekings said new investments in Affinity Water and High Speed 1 were completed in the period, adding that in both cases, InfraRed secured aligned co-investment from UK pension funds and international institutions which facilitated prudent management of portfolio exposure.

At 30 September, the 10 largest assets in the portfolio represented around 45% of portfolio value.

"We expect acquisition activity for the remainder of the financial year to be muted and largely focused on PPP projects and existing bids for OFTO Tender Round 5.

"Looking further into 2018, we are optimistic that opportunities will arise to add value to the existing portfolio."

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