3i Infrastructure (3IN ), winner of a third Citywire investment trust performance award this month, is on track to hit its annual 8-10% return target despite Covid-19 hits to its energy and airline sector investments in the first half of the year.
Half-year results last week showed the £2.7bn Jersey investment company edged up its underlying net asset value (NAV) by 1.97% to 259.4p in the six months to 30 September.
With dividends included it generated a total return on net assets of 3.8% from its 20 investments in infrastructure, utilities, transport and logistics. Analysts at Numis Securities said this was ‘muted’ compared to previous periods but was explained by the portfolio carrying £360m, or 15.6% of its assets, in cash after a string of profitable disposals.
Despite the cash drag, 3IN remains on track to deliver a 6.5% increase in annual dividends to 9.8p a share in this financial year, after declaring an interim payment to shareholders of 4.9p. At 300.5p, down 2% today, this leaves the shares, which stand at an 18% premium over NAV, on a yield of 3%.
And notwithstanding the pressures from the pandemic, 3IN enjoyed an overall valuation gain of £47m with Joulz, an electric vehicle charging business bought in March and accounting for 12% of assets, performing ahead of expectations with a 16% return.
Valorem, a 6% position in a renewable energy provider, generated a 20.5% return, benefiting from windy weather and a re-financing.
3i India Infrastructure Fund, a portfolio of five assets gradually being sold off in which 3IN has a 2% weighting, generated an 18.5% return.
Ionisos, the French ionizer specialist that represents 12% of 3IN, also performed well with an 8% return as its cold sterilisation service became essential to the healthcare and pharmaceutical industries in the pandemic.
Partly offsetting these, though, was a £19m, or 5.4%, writedown of its investment in TCR, a leaser of ground-handling equipment to airports and airlines, which is 3IN’s fifth biggest holding at 11%.
Phil White, head of infrastructure at 3i Investments, 3iN’s fund manager, said TCR had performed ‘broadly in line’ with expectations in the first half of the year as flights resumed ‘earlier than we had anticipated and operating costs were managed well’.
However, the seriousness and longevity of the pandemic meant White expected the recovery in TCR’s market to be delayed.
‘Travel restrictions and the ongoing effects of the pandemic on demand for air travel are now expected to endure for longer than we had previously assumed, with a more prolonged period of gradual recovery to previous air traffic levels by 2024 and consequential impact on TCR’s customers,’ he said.
‘This has led to a reduction in our valuation of TCR.’
White said it had ‘ample liquidity’ and a well-diversified portfolio ‘providing essential infrastructure services that has proved resilient to the challenges of the Covid-19 pandemic’.
Infinis, a generator of electricity from landfill gas that is 3IN’s largest holding at 16%, also outperformed operationally. However, its return was reduced to 2.5% as a a result of falling power price forecasts lowering its valuation.
White said while markets have been volatile, there has been a ‘reasonable level of transaction activity in the infrastructure sector’ which shows investor appetite remains for infrastructure assets.
‘Competition is still high, but we remain patient around the deployment of our available liquidity, seeking those opportunities that enhance the portfolio,’ he said.
‘The pipeline includes further investments in existing sectors, particularly to support energy transition and communications infrastructure.’
3IN clinched its Citywire award in the infrstructure category with 59% growth in NAV over the three years to 31 August, that beat off challenges from Renewables Infrastructure Group (TRIG) and Greencoat UK Wind (UKW).
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