John Laing Infrastructure Share Discussion Threads

[daveofdevon] 02/12/2014 02:44

For those who want to seek similar opportunities my ISA includes the following:


BBOX 5.3% - Tritax Big Box - Distribution warehouses

ESP 5.9% - Empiric Student Property - University student accommodation

PHP 5.4% - Primary Healthcare Properties - Doctors surgeries

UKW 5.4% - Greencoat UK Wind - Wind farms

TRIG 5.3% - The Renewables Infrastructure Gp - Solar and wind farms

HFEL 5.6% - Henderson Far East - Regional investment trust

CSN - 5.5% - Chesnara - Life policies run off fund

and then of course HICL & JFIL

These are my "sleep easy" funds which my old & simple mind believes will never go pop and which I will leave to my executors to sell !

Happy to discuss any of them but not too keen to clutter the JLIF thread.

NB in some cases the fund is just getting going so the yield is projected

[fardistanthills] 01/12/2014 22:21

DAVEOFDEVON thanks for the reply - increased management fees as the funds grow is an interesting angle I had not considered! I am at a stage in life where I need to move away from growth / value investing and build up some income - like you in my ISA. I would indeed be interested in a quick listing of the nine holdings you mention. Incidentally you say holding HICL / JLIF in an ISA generates a tax free incomes - is this because they are classed as REITs?

What you and jonwig say regarding the relative HICL / JLIF premiums to NAV, and also the better yield available at JLIF, confirm my inclination toward the latter. But on Sunday afternoon, just as I was making up my mind to press the buy button some time this week, up comes the news that they are in discussion to take on the BBY portfolio! So I now have to decide whether to wait, see whether it goes ahead and if so, what they pay for it and how the market responds! More help needed ;-) (AS DoD says jonwig, appreciate the ongoing discussion you generate here, HICL, PHNX, etc)

[schofip] 01/12/2014 22:20

One other question.
For those with a reliable crystal ball. If a rights issue was to go ahead how quickly would that be announced. This will help with entry timing etc also how much lower is JLIf likely to fall or is that now it. Any comments appreciated

[schofip] 01/12/2014 22:16

Hi DaveofDevon
I have been a fairly large holder of HICL in my ISA for over a year and have been eyeing up JLIF and 3i to spread the risk. Would you be happy to share the other similar investments you have in your ISA.
For interest I also have a sizeable holding in SLI as well as a stake in BT


Regards
Schofip

[jonwig] 01/12/2014 09:40

Funnily enough, both the FT and the Telegraph say "a rights issue".

The company's RNS says: " JLIF would seek to finance the acquisition largely via an equity capital raise of ordinary shares, as with its previous acquisitions."
But previous acquisitions were never rights issues!

Links, with my comment at the foot:





EDIT: I've sent an e-mail asking for clarification.

[lizafl] 01/12/2014 09:30

Thanks jonwig. Will keep some spare cash available, just in case.

[jonwig] 01/12/2014 09:28

lizafl - they tap institutions for placings at fairly regular intervals, and once they've reached the allowed ceiling on these non-pre-emptive issues, they make an open offer to all shareholders.
The price tends to be somewhere between NAV and share price.

(Not the same as a rights issue. You take up the offer or lose the chance.)

[lizafl] 01/12/2014 09:25

What's their normal method of raising funds for acquisitions? Will it be a rights issue that ordinary shareholders can take part in?

[nerja] 01/12/2014 08:53

last lot of shares issued at 116p, so how far will it drop this time, another buying opp but its guess the price time again.

[jonwig] 01/12/2014 07:33

Hi both - yield on NAV is a better guide than on share price - JLIF is 6.2%, HICL is 5.6% so, yes, there is some discrepancy.

Greater risk profile maybe, or different lifespan of projects. Or even that HICL has to source more from an open market whereas JLIF seems to have a sweetheart relationship with John Laing.

Reason for continued acquisitions - I agree that they want to achieve a steady state, but they can, or course, only grow so long as the market willingly absorbs their new equity offerings. So far it has, but this one will be a big one!

I hope they will be tough with BBY who seem to be the needy seller. A good bit less than £1bn would see an equity issue grabbed enthusiastically. (By the way, still not big enough for the FTSE100 I think!)

[skinny] 01/12/2014 07:05

JLIF STATEMENT REGARDING THE BALFOUR BEATTY PPP PORTFOLIO

Further to recent press speculation, John Laing Infrastructure Fund Ltd ("JLIF") confirms that today it is making a non-binding proposal, subject to due diligence, to the Board of Balfour Beatty plc for its PPP Portfolio (the "Portfolio") for approximately GBP1bn in cash.

Since its IPO in 2010, JLIF has proven itself as a leading London-listed infrastructure fund investing in low risk, operational infrastructure assets and therefore believes it would be an ideal owner of the Portfolio.

Following due diligence and in the event agreement is reached to purchase the Portfolio, JLIF would seek to finance the acquisition largely via an equity capital raise of ordinary shares, as with its previous acquisitions.

A further announcement will be made when appropriate.

[daveofdevon] 01/12/2014 05:40

FDH...If I may jump into your chat with jonwig (whose comments and depth of insight have been of value to me for a long time)I have always assumed that the never ending round of fund raising and expansion is quite simply because a bigger fund earns more management fees even though it is promoted as offering a lower cost base and more diversity to investors.

I hold both HICL & JLIF in my ISA because they provide a low risk tax free income stream that cannot be matched anywhere else and lets me sleep easy. If HICL does any more fund raising I would not participate because they have become so popular that the premium to NAV has gone nuts and JLIF and others offer the same product at much better yield.

For safety and to maintain my yield at 5% plus I have diversified into other trusts which offer HICL like characteristics and now have 9 different funds in my portfolio. If you want to widen your horizon I will happily discus the options and know that jonwig is in most of them as well.

[fardistanthills] 30/11/2014 23:02

jonwig, I don't own either this or HICL but have been pondering whether to buy in to one or both for some months - although leaning toward just JLIF on account of the greater yield, rather than both. Am I right to assume the higher yield is down to the greater risk profile, JLIF having previously given itself the flexibility to take on pre-completion projects?

The reason for holding back is there is one aspect of these infrastructure companies which I do not quite get. What compels them to keep taking on more and more assets?

Am I right in thinking the goal is to build up a portfolio of projects with a balance of maturities. Eventually a sort of steady state will be reached betweeen projects just commencing with many years to run and those those coming to the end of their term - with a whole gamut in between. Is it at that point the commpany will have reached its ultimate size? When and what will that be? And does it matter ;-)

[jonwig] 30/11/2014 19:29

Thanks for the link: a £1.1bn portfolio which would double the size of JLIF.
That would have to be an open offer to all shareholders!

Some of these are early-stage projects under construction, which would increase the risk profile.

[fardistanthills] 30/11/2014 17:51

JLIF eyes £1bn Balfour Beatty portfolio - November 30, 2014, 5:25pm

hxxp://www.cityam.com/1417363836/john-laing-eyes-1bn-balfour-beatty-portfolio

[jonwig] 27/11/2014 07:31

Infrastructure investment must be treated as a wholly independent sector rather than a bolt-on for real estate or private debt investors, according to a panel of experts.

More:



There might be implications for institutional asset allocation, I don't know.
Any comments?

[bigmike100] 12/11/2014 14:50

Jonwig thanks very much for the response. Thanks also mf for your input.

[mad foetus] 10/11/2014 15:18

jonwig - I think the self-funding model works very well for that profession!

Thanks for all the threads you have set up and contribute to. I think there are a lot of investors who are happy to make 8-10% pa without too much risk and it is good to see that such investments do exist and can be usefully discussed. Not everything has to (not) be a five-bagger next week!

[jonwig] 10/11/2014 14:57

mad f - thank you for that.

Should the accountancy profession be funded from the Arts Council?

[mad foetus] 10/11/2014 14:53

That is correct and better than I could have explained it. As you say though it is much more complex because you could be dealing with a fund with several different asset classes (e.g. "normal" PFI, all manner of different renewables etc) funded at different levels (equity, senior debt, subordinated debt) all with different lifespans and different repayment profiles and a different discount rate can be applied based on all of those considerations. And then, periodically, someone may make an offer for an asset at a material difference to how the auditors have valued it so you have to go back and say "are you sure this is the right discount rate?"

imo the key thing, as jonwig pointed out, is to keep in your head that the loan will be repaid in the future. A £100m loan at 5% for 25 years with a single final capital repayment is £225m in total, and as the time for repayment nears the value of it will converge on the £100m final payment. Before then, people may be willing to pay more or less for the income stream.

[jonwig] 10/11/2014 14:44

LOL, Bigmike ... You obviously know your stuff. I didn't say it!

OK, suppose you expect income of £100 in 3 years' time. The present value of that is (discount rate 7%) -

100/(1.07^3) = 81.63, but a year later it's 100/(1.07^2) = 87.34, so the improvement ("unwind") is 5.71.

But suppose you've also reduce the discount rate (as per post) to (say) 6%, then it's 100/(1.06)^2, or 89.00 ... 1.66 better. So that's how the NAV gains over and above the accounting unwind.

In reality, it's obviously not a single income but a continuous income stream, so a lot more complex to calculate.

At some future date the income stream will dry up, and the NAV will start to deplete. Hence the new investments from new equity raisings.

[I hope an accountant is reading this to put me right if needed!]

[bigmike100] 10/11/2014 14:05

jonwig please explain "discount rate unwind" and "cash flow discount rate" You obviously know your stuff.

[jonwig] 10/11/2014 07:59

This kind of statement will be a common feature of all the infrastructure funds:

Actual underlying growth in Portfolio value for the nine months to the end of September was 7.16% (or £54.1 million), 18% ahead of discount rate unwind expectations.

The discount rate unwind is an accounting fact, but why should the NAV be increasing faster than this?
The only reason I can think of is that they have reduced the cashflow discount rate itself (HICL did the same, I remember), because long-term inflation and interest rates are expected to be lower than previously calculated, and more importantly because JLIF and other funds are bidding up the price of infrastructure assets.

So the factors which could increase the working discount rate will see a fall in NAV. Whether this will be slow or sharp is worth watching out for!

[skinny] 10/11/2014 07:23

HIGHLIGHTS

• Actual growth in Portfolio value for the year to date of 7.16% to £809.9 million on a rebased value of £755.8 million[2]
• Market capitalisation exceeded £1 billion for the first time in October 2014, less than four years after launch (IPO value of £270 million)
• Successful share issue in September 2014 raising gross proceeds of £50 million
• Additional c.£39 million of acquisitions agreed since 1 July 2014
• Dividend of 3.25 pence per share paid in October 2014 in respect of the six month period to June 2014
• Net Asset Value[3] ("NAV") of £881.9 million as at 30 September 2014, including £24.9 million allocated to dividend paid in October 2014
• NAV per share, as at 30 September 2014, of 105.6 pence ex-div (108.8 pence cum-div), due to underlying growth over the period

[bigmike100] 02/10/2014 22:24

cheers skinny