Investing in infrastructure

Duncan Ball discusses the income advantages of the infrastructure sector.

Duncan Ball, Co-CEO, BBGI

View the BBGI company profile page

BBGI principally invests in infrastructure projects that are operational and that have completed construction. However, we do, have some exposure to projects that are under construction (currently 11%, and limited to 25%, of the portfolio value). The rationale for this approach is to be able to produce a stable dividend for shareholders, while at the same time gaining some exposure to the potential NAV uplift that can occur when projects move from the construction stage to the operational stage. Our overarching investment theme, consistent to all projects, is stable, predictable inflation-linked income from credit worthy counterparties.

An investment in BBGI will appeal to investors looking for predictable dividend income, derived from long-term cashflows from asset which are backed by public sector counterparties. The underlying portfolio offers strong yield characteristics and attractive inflation correlation, and the minimum target dividend is 5.76 pence per share.

BBGI benefits from a globally diversified portfolio with all 36 of its assets located in AAA and AA-rate countries. Geographic exposure includes UK (41%), Canada (29%), Australia (15%), continental Europe (11%) and USA (4%). This means that BBGI is not overly dependent on one market or one government counter party. The company invests in projects where the revenue streams do not generally depend on the level of use of the infrastructure asset and as such are “availability-based”.

Golden Ears Bridge, Canada, spans the Fraser River near Vancouver. The scheme was opened in 2009 and includes more than 3.5km of structures including ramps, viaducts, minor bridges and underpasses, and more than 13km of mainline roadway. While the project is tolled, BBGI received payments from government and is not subject to volume/ traffic risk.

In the UK, the section of road between Stepps and Haggs on the M80 is an all-purpose dual carriageway, and was previously the only non-motorway section of the A80 between Glasgow and the end of the motorway. The project involved construction of 18km of dual two or three lane motorway with associated slip roads and infrastructure. These improvements have reduced congestion for road users and improved journey times, as well as providing us with stable, predictable payments from UK government.

In Australia, two significant augmentation orders were recently undertaken to expand prisoner capacity at the Metropolitan Remand Centre near Melbourne, as well as the Marngoneet Correctional Centre in Greater Melbourne. This project was chosen based again on stable, predictable government payments, and BBGI has also benefitted from the State’s desire to expand existing facilities instead of building new ones. 

BBGI is unique among the London listed infrastructure companies with its internal management structure and accordingly there is no external fund manager, no performance fees or acquisition fees. The management team will only acquire new projects when the acquisitions are considered beneficial for shareholders. The current annual ongoing charge is the lowest in the London listed infrastructure sector and is below 1%, with potential for the ongoing charge to decrease further as the company grows.

In less than a decade, the London listed infrastructure sector has grown from a handful of investment funds into a well-established alternative asset class with a combined market capitalisation in excess of £9.4 billion. The listed infrastructure sector was initially focused on PPP/PFI (public-private partnerships through funding of public infrastructure with private capital) and economic infrastructure, but in recent years the sector has expanded to also include renewables investment companies and infrastructure debt funds. While the return, risk profiles and investments policies vary considerably between the companies in the sector, the group in general has delivered steady dividend income to investors while also delivering low price volatility and low correlation with other asset classes. The London listed infrastructure sector has matured to the point where it now warrants inclusion in most well diversified portfolios.