3i Infrastructure (3IN ) fund managers Scott Moseley and Bernardo Sottomayor are confident the £3bn investment company will beat its 8%-10% return target this year with most assets performing ‘ahead of our expectations’.

In a third-quarter update to 31 December, Moseley and Sottomayor said that the €214m (£183m) sale in November of Dutch waste treatment and recycler Attero at a 31% uplift had helped reduce the amount drawn on its £900m credit facility to £555m.

The closed-end fund ended the year with £75m in cash, £55m of which it used to pay the interim dividend in January. 3IN is on track to deliver this year’s dividend of 11.9p per share, up 6.7% on the previous year, which will be fully covered by net income. 

‘Our strategy remains consistent as we prioritise supporting the growth of our existing portfolio companies where we are seeing a number of attractive opportunities, and we will apply proceeds from any divestments to reduce outstanding balances on 3iN’s revolving credit facility,’ the managers said.

Portfolio development

TCR, Europe’s biggest independent asset manager of airport ground support equipment, which makes up 15% of assets, had a strong period, reporting earnings growth ahead of expectations. Earlier this month it expanded its global presence, buying equipment services subsidiary KES from KLM Royal Dutch Airlines.

ESVAGT, a Danish provider of emergency rescue and response vessels, which makes up 13% of assets, also had a good start to the year and signed a new 15-year contract with Vestas to provide an additional vessel in the North Sea, boosting its total contract backlog to over €1.5bn.

Moseley and Sottomayor also deployed £30m into recent acquisition Future Biogas, a developer and operator of anaerobic digestion (AD) plants across the UK, which the fund bought last February for £28m. The new money will fund the acquisition of two anaerobic digestion plants.

The only fly in the ointment has been DNS:NET, a German telecommunications provider that the pair have written down several times and overseen the appointment of new management. The company is finalising its rollout plan and more information will be provided in 3IN’s annual results.

Analyst views

Numis research analyst Colette Ord said that it was ‘notable that the majority of the remaining portfolio companies deliver or are ahead on their business plan’.

‘3IN exemplifies all of our preferred traits in respect of origination, portfolio differentiation, and a track record of delivering attractive long-term returns across business cycles and varying macro-economic backdrops,’ said Ord.

‘We believe the current share price offers value for access to the high-quality portfolio.’

Stifel analyst Iain Scouller, who has 3IN as a top pick for 2024, agreed and lifted his net asset value (NAV) expectation for the period up to 31 March to 360p-375p, up from 350p-365p.

‘At a price of 322p, the shares are on a 13% discount to our NAV expectation, which we think offers good value,’ Scouller wrote in a note. ‘A key attraction is that this is a portfolio of companies with cash flows in perpetuity, rather than a portfolio of PFI [Private Finance] concessions having fixed end dates.’

Scouller has a target price of 355p, which implies a low-single-digit discount.

Liberum and Peel Hunt also said the update was strong, however, the latter thought there were better bargains in the sector. Analyst Markuz Jaffe pointed to Pantheon Infrastructure (PINT ) which is on a 21% discount.

Although in the past year the shares have been flat with dividends included, over five and 10 years 3IN’s total shareholder returns have been the best in its sector, returning 42.9% and 221%.