Gcp Infrastructure Inves... Share Discussion Threads

[hpcg] 27/6/2023 18:06

I bought a chunk more today. Had a good read through the latest financials and when it comes down to it it pays a lot more than government bonds, and the trashy rates the banks are offering. That is exactly the same situation as every other time I've bought, so in a sense means nothing. The difference to me is the need to keep money working because if it isn't its purchasing power is draining away. The risk is much higher rates, but the economy clearly doesn't need 10 or even 8% to dramatically slow it down.

[spectoacc] 27/6/2023 13:13

After years of borrowing at next to nothing, followed by a final & calamitous £400bn binge during Covid, we are indeed stuffed. Debt costs are ratcheting up hugely.

Quite what you do about that, other than "don't start from here", is another argument.

Now no choice but to increase rates whilst the economy is weak - there's too much money around, and inflation is the ultimate evil.

Not so much Volcker as 1990's.

State has got far too big, & can't see it getting any smaller after the next GE.

We've gone OT. Good to see a small bounce off the bottom on GCP.

[donald pond] 27/6/2023 13:09

Rates should have been higher from 2011/12 to 2021. But increasing rates when the economy is weak and debt is high is the wrong approach. I read that the state spends 50% of GDP and is running an 8% deficit. I'd suggest addressing that will do more for inflation than anything else

[spectoacc] 27/6/2023 12:54

Increasing the labour pool is vital, I agree. Whether you can do that by say cutting jobs in the NHS (by far the largest employer) I doubt. Likely the opposite, to get some of the c.2.5m on the sick back into work.

It isn't central banks causing wage demands - it's how tight the labour market is. Recession/sharp slowdown the only realistic way to resolve that.

There's a bizarre Erdogan-esque belief that higher interest rates cause higher inflation. Rates should have gone a lot higher, a lot sooner.

[donald pond] 27/6/2023 12:16

ECB today saying that the main cause of inflation has been firms expanding margins in anticipation of wage demands. In other words, central bank fearmongering triggered companies to add fuel to inflation fire, and now it is raging. Put interest rates at 2/3%, have policies to cushion the worst short term impacts of energy and food inflation, sit back, watch inflation come right back down.

[donald pond] 27/6/2023 12:04

The way to solve this type of inflation is to keep interest rates low (too much money sloshing around and near zero economic growth don't make much sense) and reduce wage pressure by getting rid of the 400,000 extra jobs created in the public sector since 2016 and not raising benefits by inflation. Wages are the big threat now and increasing the cost of mortgages just adds pressure to the need to earn more. This isn't a Volcker moment

[spectoacc] 27/6/2023 11:47

Unfortunately food is still going up in double-digits (18.3% last month YoY), flights/package holidays were +40%, & car insurance a staggering +50%.

There's Still Too Much Money around, most of it from the vast Covid juicing (c.£400bn UK).

All the evidence is of inflation moderating, falling, but not by nearly enough. Average earnings c.7%, wage-price (or price-wage) has overtaken cost-push.

Saying all that, 5-something interest rates surely enough to cause the necessary recession.

@Wc104 - $ looks highly vulnerable to me, but agreed re Sterling, particularly depending what ex-BoE Ms Reeves has in store.

[hindsight] 27/6/2023 11:06

donald, not just commodities, UK PMI is now negative, manufacturing demand collapsing in far east in china and now signapore. This is all deflationary. Wasnt long ago these factors were used for the mad ZIRP policy

Singapore’s manufacturing output decreased 10.8% in May 2023 from a year earlier, its fastest rate of decline since February 2013.
Excluding biomedical manufacturing, output fell 13% compared to the same period last year.

On a seasonally adjusted month-on-month basis, manufacturing output decreased 3.9% in May, and if biomedical manufacturing was excluded, output decreased 8% month-on-month.

[donald pond] 27/6/2023 10:25

Mind you, corn, wheat, oil all down 25-50% over last 12 months. The only thing rising are interest rates!

[williamcooper104] 27/6/2023 10:14

Yep for inflation and energy prices most infra funds only increases their short term forecasts, they all based NAV/DCFs on both inflation and energy returning to trend Most of them have undercut inflation

[williamcooper104] 27/6/2023 10:12

That's why always good to have a lot of dollar assets (not that it's helped me recently though) - not least US markets are cheaper to invest in with vastly more liquidity

[donald pond] 27/6/2023 10:09

TBH my biggest concern is currency risk. With the state being 50% of our economy, deficits running at 5% of GDP and neither party believing that cutting the size of the state is even worth considering, the next crisis may well be a lack of faith in sterling. But who knows!

[donald pond] 27/6/2023 08:34

CCAFAIK long term electricity prices are now forecast to be significantly above the levels predicted in the 2015-2020 period when many of these funds made their investments. And as others have said, when the life of loans is 10 years+, it's the long end that matters. I struggle to believe that £1/1.10 of debt yielding 7% for 15 years is only worth 73p today

[jonwig] 27/6/2023 07:24

Yes, it was a question!

But I was looking further ahead; for example, HICL's assets have a range of maturity up to 2049, I think. This was the chart I was looking at:

[cc2014] 27/6/2023 07:19

Jonwig. A really good question.

10 year gilt at end March 3.3%
10 year gilt now 4.3%

30 year show about a 0.7% movement over the same time.

Some of it will have fed through.

[jonwig] 27/6/2023 07:10

CC2014 - discount rates ... the UK yield curve is inverted. Long rates aren't moving much and the excitement is at the short end. Aren't asset backed funds pricing against the long end?

[cc2014] 27/6/2023 06:25

1. Transfer from bond proxies to corporate bonds/gilts
2. Transfer from bond proxies to bond funds
3. Less attitude for risk

As for who's selling I tend to hold a dim view of the performance of fund managers and their analysts. They of course are forced to invest when we are not but I do think they have better access to information that us PI's and pay better attention to certain key drivers

1. It is hard to us to judge the value of commercial property or solar farms but I think a good fund manager will see the transactional costs much more closely. I suggest what's actually going on out there in the real world shows much more pressure on asset prices than us PI's realise.

2. The discount rate. I do not wish to cause alarm or examine an issue that's not there but I think it is possible the audit industry may step in and assert itself over this. Because interest rates have moved up 5% but it's hard to find a fund that's moved their discount rate more then 1%. I'm sure someone will pop up and name one but I can't think of one.

This an extract from RNEW yesterday
Analysts at Peel Hunt, the trust’s corporate broker, this morning downgraded the stock from ‘outperform217; to ‘underperform’, noting that despite US government bond yields jumping from 1.5% to 3.7% since the start of last year, RNEW had only lifted the discount rate with which its values its cashflows by 25 basis points, or 0.25%, to 7.5%.

Without being alarmist imho this is a scandal and where the discount rates to be moved properly the NAV's of REITs, infra funds and renewalbe funds many of now which use DCF models with discount rates to calculate the NAV would get smashed.

The industry did this to improve the NAV's and the day JLEN moved from a traditional NAV based on "historic cost or revaluation cost" to DCF the NAV jumped 10%. They did nothing, they just changed the methodology.

It's all coming home to roost because the fund managers aren't as stupid as we think they are. They are running a "what would I pay for this?" whereas the financial press keeps telling us the discount to NAV should close. I agree it does need to close but it needs to close to the downside through appropriate maths.


That's not to say the falls may or may not be overdone and there shouldn't be some closure to the upside but more than 50% needs to be to the downside.


Or another way to think about it is to sense check today's price. I'll use NESF as I know it. Before Putin the share price was about 100p. Today it's about 95p. Is 95p cheap? Hard to say but long term electricity prices look like they will soon be back to where they were. In the meantime the opportunity cost of cash has gone up from 0% to 5% if you use the base rate. The argument is more complex than this but one might see 95p as not cheap, indeed as expensive. The fact the share price went to 120p makes it feel cheap but is it?

The discount to NAV on NESF is now around 12% and the financial press are already talking about NESF have to close it. Indeed NESF agree. They are going to sell solar assets (to who and at what price?) and buy energy storage and use the spare cash to buy back shares. In my mind it's all wrong. The discount to NAV exists because the DCF NAV is wrong because the discount rate is wrong. However, we will find out in due course, because if NESF do manage to sell the solar assets we will see the impact on NAV. I am intrigued to see if they can pull off this stunt.

[spectoacc] 26/6/2023 21:29

It is interesting to wonder who's selling, but if it's large holders (holder?), eg a major pension fund like one of the council ones, you wouldn't see the RNS's until they've finished. Not impossible they sold the REITs off on Friday, the infra/renewables ITs today.

Agree with the point about not seeing who the sellers are, when the ADVFN brigade are always long, some co's have director buys, and many have buy-backs in place.

Another thought - if these falls aren't on any visible panic selling, what would it look like if/when they are?

On Gilts - the 10yr has been improving, it can't explain Friday or today.

(Major holders in header re pension fund theory.)

[hindsight] 26/6/2023 19:48

Nope Resi property

When it went mad last year gilt holders thought sod this for a game of soldiers, we arent transferring wealth any longer
Especially when Bailey in the wheel house
And here we are, all be fine when resi drops 20%, mild 1990s

[chucko1] 26/6/2023 18:07

It may well be Gilts, but the relationship has hardly been a simple one, if viewed over insufficient time frames.

[kinbasket] 26/6/2023 17:48

For sure it's all about gilts.

It's the mechanism for the transfer of that to the market that interests me. It isn't just humans behind desks making decisions based on valuation anymore.

[williamcooper104] 26/6/2023 17:40

Nope; gilts That's it

[kinbasket] 26/6/2023 17:18

I've had a small toe in here for the first time.

I'd be interested to know if Passive is causing some of this decline. Also in Reits/PE/VC etc. I doubt passive reaches far into these corners of the market but volumes are low so it only needs a small amount of bot trading to move the price.

[jonwig] 26/6/2023 16:59

I bought back in last week, too after the latest presentation and results.

Since all these asset-backed things are bombing, we can probably forget company-specific issues, which are always the most worrying. ("We're all in it together" is quite reassuring.)

What's interesting is that I don't think selling here and elsewhere is all that heavy, so lack of buyers is having a disproportionate effect. Also, in all my portfolio of similar companies, there are no holdings RNSs showing a reduction, but a few showing an addition. So institutional holders aren't selling in quantity. But directors are buying in many cases. Also there's a lot of daily buybacks.

What's behind it all? Simple answer: we've no idea how far the BoE needs to go, and the BoE has no idea either. Or is it more complicated?

[stewart64] 26/6/2023 16:52

There are some top QUALITY bombed out Bond proxies out there. TRIG is probably the most highly regarded (it's Equity in renewables rather than just debt). Six years of prices increases undone(flash crashes aside) and back to the early 2017 price of 108p. ( 20% nav discount). I reckon maximum distress for Equities generally might be circa February 2024 ( housing correction plus 18months). Certainly was the case back in the Spring of 2009 whence the FTSE 100 plunged to 3500.

Which is why I am sheltering in Cash Bonds just now.