Hicl Infrastructure Share Discussion Threads

[jonwig] 28/9/2023 07:21

Further PPP disposals at a small premium to book:



Reducing RCF looks a good strategy for the present.

[jonwig] 18/9/2023 07:12

"The Board is pleased to announce that HICL has entered into an agreement to dispose of its entire equity interests in the Bradford Building Schools for the Future ("BSF") Phase 1 ("Bradford 1") and Bradford BSF Phase 2 PFI projects ("Bradford 2") (together the "Projects") for a total consideration of c. GBP37m. Together with refinancing proceeds received since 31 March 2023, the sale represents an 8% premium to the Company's last audited valuation at 31 March 2023. Completion is expected in Q4 2023, subject to customary closing conditions."

Further confirming that its published NAV is robust, and not a vanity project!

[skinny] 03/9/2023 09:57

A small mention :-

[boozey] 30/8/2023 20:01

Nice recovery finally.

[panshanger1] 30/8/2023 15:02

Added recently at GCP too another one having a better day for the same reason

[williamcooper104] 30/8/2023 14:16

BBGI up a lot too today Amusing isn't it; suspect is on lower inflation outlook, which is worse for future cashflows but better for the discount rate/bond proxy valuation NAVs for all the infra trusts assume that inflation drops like a stone

[panshanger1] 30/8/2023 14:11

Decent volume Wonder if we've seen the bottom here ?

[catch007] 22/8/2023 09:31

I have continued to add more HICL for the long term.

August update stated: 'In the Board's view, the Company's current share rating does not fully reflect the positive impact of higher than assumed inflation on HICL's cashflows'. IMHO there is currently a deep disconnect with the current share price based on the market weakness.

[catch007] 03/8/2023 20:46

Added another tranche today at £1.268 - nothing wrong with longer term prospects imho and at this price the yield was tempting despite todays interest rate rise. A solid hold in my portfolio. Took a few INPP for much the same reasons as well.

[jonwig] 02/8/2023 07:16

Boozey - I think you misunderstand. HICL owns the line, and the new service will increase traffic, hence revenues for HICL.

[boozey] 02/8/2023 06:52

Reference the point raised in post 1153 about HS1, this project accounts for about 4% of HICL's revenue so whatever Mobico and their consortium have lined up to rival Eurostar is not going to have a material influence on HICL's overall performance (unfortunately!)

EDIT: More Director Buying

[williamcooper104] 02/8/2023 05:59

Very conservative RPI assumptions Interesting that there's a net positive NAV benefit to higher interest rates owning to all the blocked cash in their project financings

[18bt] 01/8/2023 07:46

Very strong points made in the statement about the alignment of inflation expectations and discount rate in the market being wrong. Or put it another way that their inflation assumptions are too low (because they are long term not short term assumptions). This is going to play out over a number of years and happy to hold.

[jonwig] 01/8/2023 07:33

Update -



Just about everything seems to be in line with expectations, and there's been quite a bit of directo/manager buying. They'll meet dividend guidance, but no hints as to when it will be increased. Are they simply wanting to improve cover?

[jonwig] 28/7/2023 14:49

FT -

A group of companies including the UK coach and train service company Mobico has held detailed talks over launching a cross-Channel train service to rival Eurostar.

Other parties involved in the discussions include the Spanish Cosmen industrialist family, which is an investor in Mobico, formerly known as National Express, according to two people with knowledge of the plans.

The new rail service, to be named Evolyn, would start running between London and Paris through the Channel Tunnel as early as 2025, they said, although final details have yet to be finalised and could change. The proposed consortium had also held discussions with other investors over funding, the people added.

The initiative would represent the first challenge to Eurostar’s current monopoly of passenger rail traffic linking London to major cities in Europe including Brussels and Amsterdam as well as Paris.


So that would increase capacity of HS1, which is part-owned by HICL. Do I read this right?

[richtea2517] 27/7/2023 16:35

Added here today

[williamcooper104] 19/7/2023 21:33

I'm out of HICL now; with now larger holdings in BBGI and INPP With the dividend growth of BBGI and INPP they end up in next year or so at around the same yield as HICL Of the share price last week the equity discount rate, adjusted for management fees and discount to NAV on share price was 7.3 on HICL and 7.8 on INPP

[peckers56] 19/7/2023 19:19

At today's AGM, the chairman confirmed that (a) there will be no increase in the dividend until at least 2025 and (b) they have not bought back any shares and have no intention of doing so.

[18bt] 19/7/2023 10:25

A couple of days of directors buys plus a potential fall in the discount rate as a result of falling inflation. I've topped up a bit. Yield of over 6% and a 21% discount looks v good value IMHO.

[williamcooper104] 16/7/2023 13:10

From memory INPP has about 7 percent of its assets in loans, that balances the construction risk and means that the discount rate on the rest is that bit higherLong term returns are 8-9 which is in line with long term (if not better than) equity returns And however you cut it the risk is less than normal equites

[williamcooper104] 16/7/2023 13:07

Thanks for posting For once a good article in IC Love the "we aren't raising our dividend as we alter our portfolio" and - our largest holding isn't paying any dividends

[unastubbs] 16/7/2023 01:07

HICL vs IPP: Which infrastructure trust should you buy?
International Public Partnerships and HICL Infrastructure are both relatively low-risk, but there are differences to factor in
Investor's Chronicle July 14, 2023

A popular asset class until last year, infrastructure has fallen out of favour quite spectacularly as interest rates rise and investors worry about the impact on net asset values (NAV). While it might be some time before a rally arrives, funds in this sector still have much to recommend them for the long term, including high yields, good levels of inflation linkage and government-backed revenues.

Sector giants International Public Partnerships (INPP) and HICL Infrastructure (HICL) have hardly ever been this cheap, but choosing between them isn't a simple task. As the chart below shows, over the past five years their performances have been similar, although HICL Infrastructure did better at times during 2022.

The two trusts have many features in common, so you need to look below the surface to gauge which of them might be more suitable for your investment approach.


Two evolving portfolios
Both trusts invest in core infrastructure, which HICL defines as “essential infrastructure assets that deliver resilient cash flows from a protected market position” and “sit at the lower end of the risk spectrum”. And both have exposure to private public partnerships (PPP), through which revenues come from the public sector so are less exposed to economic fluctuations.

But like most infrastructure trusts, over the past few years, both portfolios have evolved, reducing their exposure to PPP and ‘social’ infrastructure assets, for example in the health and education sectors, in favour of more economically sensitive projects, such as those in the utilities sector.

Despite their names, HICL is more exposed to PPPs than International Public Partnerships, which has significant investments in regulated assets instead. Regulated assets’ revenues are pre-determined for a given period via sporadic regulatory settlements.

IPP’s key assets in this area are Cadent, the UK’s largest gas distribution network, and Tideway, which is in charge of building and maintaining the new 25km London ‘super-sewer’ under the Thames. The trust recently published an update to reassure investors that the financial difficulties experienced by Thames Water are not impacting Tideway, which is a separate company and has arrangements in place to protect its revenues in such circumstances.

The past few years HICL has shifted towards a higher exposure to demand-based assets, particularly in the transport sector. For example, traffic levels have an impact on the revenues of the trust’s second-largest investment, the A63 motorway in France.

HICL's shift away from PPP, health and education is because no new PPP projects are being commissioned in the UK and the price of secondary transactions is rising, detracting from returns. Earlier this year, Stifel analysts argued that moving towards economic assets offers benefits including higher potential for returns and longer portfolio lives. But it also slightly changes the trusts’ risk profiles, leaving them more exposed to economic conditions and regulatory changes. “Given the weaker economic outlook, this is a bit of a concern,” they noted.

As well as having fewer PPP projects, International Public Partnerships has greater exposure to construction projects – 14 per cent of its portfolio compared with 3 per cent of HICL's. Both trusts are UK-focused, although HICL is slightly more internationally diversified with a 64 per cent exposure to the UK against International Public Partnerships’ 76 per cent.

Mick Gilligan, head of managed portfolio services at Killik, adds: “[Many infrastructure investors will] prefer assets that have low levels of economic sensitivity and execution risk, and high levels of inflation linkage. In effect, closer to an inflation-linked bond than to an equity. On this basis, HICL is more attractive than International Public Partnerships.”

Discount rates under pressure
While the composition of its portfolio means International Public Partnerships is arguably slightly riskier than HICL, there are other considerations including the discount rate they use – International Public Partnerships’ is 7.5 per cent, on average, while HICL’s is 7.2 per cent.

Because of the long lives of their assets, both trusts are heavily impacted by an increase in their discount rates. According to their last financial statements, a percentage point increase in discount rate was expected to result in 11.6 and 8.9 per cent NAV decreases for HICL and IPP, respectively.

This helps to explain why these trusts react so negatively to higher interest rates, with their share prices showing high levels of correlation with gilt yields (‘Why it's hard to find funds that benefit from higher rates’, IC, 23 June 2023). Higher rates put pressure on the risk premium offered by these funds, and International Public Partnerships has a bit of extra breathing room. In its latest portfolio update at the end of May, the trust acknowledged the increase in government bond yields since the publication of its December 2022 NAV, although it added that “historically discount rates have not moved in lockstep with government bond yields”.

Both HICL and IPP might yet have to increase their discount rates further this year, after increasing them by 60 basis points (bps) and 54bps, respectively, over the course of last year.

But this might not be as bad as the discounts in the sector would imply. At the end of June, Stifel analysts estimated that the market was pricing in discount rates of 8.8 per cent for HICL and 9.5 per cent for International Public Partnerships, which they deemed “relatively high".

The negative effect of discount rates is partly compensated for by inflation-linked revenues. HICL boasts an inflation correlation of 0.8, meaning that every percentage point increase in inflation is expected to result in a 0.8 per cent increase in its cash flow. International Public Partnerships has an inflation correlation of 0.7.

To gauge which of the two trusts looks more attractive at any given time, Gilligan uses a model that adjusts the discount rate to take into account factors such as any leverage or cash at the holding company level, fees and the premium or discount. The model calculates the “steady state return” or the rate of return that investors should receive based on the current share price. As at 4 July, this was 7.9 per cent for HICL and 8.4 per cent for International Public Partnerships.

“We like the relatively low-risk nature of both trusts and hold both in portfolios,” says Gilligan. “We tend to have a higher weighting in whichever [one] is showing a higher steady state return, which is currently International Public Partnerships.”

'Disappointing' dividend growth

HICL had a slightly wider discount and higher yield than International Public Partnerships. As of 7 July, but despite its high levels of inflation-linkage, the trust doesn't plan to increase its dividend target in respect of its financial years to March 2024 and 2025, meaning that the real value of its shareholders' investment income will decrease significantly. After years of steady dividend growth, HICL has held its dividend at 8.25p a share since its financial year to March 2020.

The trust’s board says that this is to future-proof the portfolio as the trust gradually moves to assets other than PPP that offer better growth prospects but tend to provide lower yields at first. The trust’s biggest asset, Affinity Water, which accounts for about 7 per cent of its portfolio, is not currently paying dividends to shareholders and is unlikely to do so until 2025. But HICL hopes to resume dividend growth in future.

International Public Partnerships targets annual dividend growth of 2.5 per cent, which is more promising, although still well below the current inflation rate.

Jefferies analysts say that the dividend plans of both funds are disappointing. By estimating future dividend cover based on cash flow projections, they believe that whether HICL will be able to resume dividend growth “is largely contingent on inflation outperformance”;, while International Public Partnerships “could consider a higher run-rate of dividend growth".

Yet both trusts could be good additions to a portfolio and their current discounts to NAV look like a solid opportunity to get them on the cheap. They provide a degree of inflation protection and a solid level of income at low risk. Which one you choose partly depends on your investment preferences – HICL looks a bit more like a bond proxy while International Public Partnerships has slightly more potential for growth.

[williamcooper104] 03/7/2023 09:40

Thanks for digging out Looks like one of the reasons why HICL has seen no divi increases recently