HICL Infrastructure

Last updated 29 October 2019

Institutional quality infrastructure assets, delivering an attractive income...

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by HICL Infrastructure. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

HICL Infrastructure

HICL offers investors an exposure to over 100 institutional quality, lower-risk core infrastructure assets. The primary aim is to provide a robust and steady income stream, with low correlation to changes in GDP or equity markets. HICL’s portfolio has been built up over the past thirteen years, with the manager’s aim being to pay a sustainable dividend, as well as to diversify and extend the income stream as much as possible.

The manager invests in lower-risk, core infrastructure assets with good correlation to inflation over the long term, as well as longevity. Whether investing new capital or reshaping the existing portfolio, the manager seeks to continually improve and optimise the portfolio’s overall characteristics. Over the past year or two, they have been paying particular attention to the portfolio composition. During the last financial year, the manager took advantage of favourable market conditions to make two strategic disposals (realising a total of £148m) and reinvesting £167m in six assets.

The manager has been successfully extending the average portfolio duration over time, and in the last financial year managed to keep the duration level at 29.5 years, despite a year having elapsed. Over that period the manager reviewed a number of investment opportunities with the objective of improving total returns, portfolio yield, cash flow longevity, and inflation correlation. We understand that during the last year InfraRed looked at 65 deals which fit HICL’s investment policy; of these they conducted detailed due diligence on 11 deals on HICL’s behalf, which eventually resulted in five investments being made to deploy the capital resulting from the two strategic disposals.

On a total return basis, HICL has outperformed UK equities since its IPO, delivering a total return of 9.4% p.a. to 31 March 2019, against 6.0% for the FTSE All Share. This strong track record applies even over shorter time frames, with the company having outperformed UK equities over both five years and 12 months. HICL continues to deliver consistent returns with low volatility.

The portfolio’s discount rate, less HICL’s ongoing costs, gives an idea of expected returns going forward. The weighted average discount rate (as at 31 March 2019) was 7.2%, and ongoing costs last estimated as 1.08% pa. Any deviation from this expected return could be a result of either ‘alpha’ delivered by the manager (upside), portfolio risks such as that posed by Carillion (downside), or changes to underlying valuation assumptions (the company is most exposed to changes in the discount rate and inflation assumptions). The depth of resource and breadth of expertise in the HICL management team helped to minimise the impact of Carillion’s failure, and the HICL board has drawn a line under that episode, with a final estimate of the total costs attributable to Carillion coming in at £33m (1.1% of NAV).

William Heathcoat Amory
William Heathcoat Amory is a co-founding partner of Kepler Partners LLP and leads the Kepler investment trust research team. William has 18 years of experience as an investment company analyst. Prior to co-founding Kepler Partners in 2008, he was part of the Extel number 1 rated research team at JPMorgan Cazenove.

Fund History

Related Research

Key facts

Investment objective

Delivering long-term, stable income from a diversified portfolio of core infrastructure investments at the lower end of the risk spectrum.

As at:

22/10/19

Group/Investment

HICL Infrastructure PLC

Ticker

HICL

Investment Manager

InfraRed Capital Partners Ltd

Manager Name

Harry Seekings

Association of Investment Companies (AIC) Sector

Infrastructure

12 Mo Yield

4.8%

Dividend Distribution Frequency

Quarterly

Latest Market Capitalisation

£3,030,613,562

Latest Net Gearing (Cum Fair)

0%

Latest Ongoing Charge Ex Perf Fee

1.08%

Turnover Ratio

0.0%

Shares Outstanding                                             

1,791,142,767

(Discount)/ Premium (Cum Fair)

10.3%

Daily Closing Price

169.2p

Source: Morningstar

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.

The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.

This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.  

Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.

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Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 9/10 Savile Row, London W1S 3PF with registered number OC334771.



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