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3i Infrastructure cleans up with £333m Cross London Train disposal

6 February 2019

3i Infrastructure gets a boost after selling stake in Thameslink train supplier for 29% more than it was worth four months ago.

3i Infrastructure (3IN) has sold its stake in Cross London Trains for £333 million to the pension fund managers that snapped up John Laing Infrastructure last year.

Dalmore Capital and Equitix Investment Management have bought 3IN’s 33% stake in Cross London Trains (XLT), which was established to buy and lease the rolling stock for use on the Thameslink train line.

The disposal represents a further hike in valuation for 3IN's holding, which accounted for 13% of its portfolio. Dalmore and Equitix, who paid a 20% premium for their £1.4 billion purchase of John Laing Infrastructure last July, have this time stumped up 29% more than the £271 million valuation of the Cross London Trains stake at the end of September. 

This was after the valuation soared £103 million in the previous six months after the company successfully delivered 115 trains for the Thameslink. At the time 3IN said it would look for a buyer of its holding. 

3IN originally invested in XLT in June 2013 when it paid £61.8 million for its one-third share alongiside the Innisfree PFI Secondary Fund 2 and Siemens, the German infrastructure developer.

Richard Laing, chairman of the £2.2 billion infrastructure company, which is now formally an investment trust having moved its tax residence from Jersey to the UK in October, said XLT had ‘proved a very good investment’ and had generated ‘significant value for our shareholders’.

‘Having supported the project through design, manufacturing, and delivery, we believe that now is an appropriate time for the company to realise its stake,’ he said.

Phil White, head of infrastructure at 3IN, said the investment had ‘helped to deliver, on time and on budget, a key element of London’s commuter rail infrastructure’.

The disposal lifts 3IN's last net asset value at the end of September by 7.2p or 3.3% to 229.3p per share. Its shares rose 2.5% to 272.5p yesterday when the news was announced, a near 19% premium to the adjusted NAV on a 3.2% dividend yield.

3IN grew its portfolio by 9.3% in the half-year to 30 September. Liberum analyst Conor Finn estimated this would have increased to 12.6% in the nine months to the end of December, well ahead of its annual total return target of 8-10%. The company reports its full-year results to the end of March in May.

After paying performance fees to its managers at 3i Group (III) and repaying down its credit facility, Numis Securities reckoned 3IN would net £200 million.

Although the company has a track record of paying big special dividends after previous disposals - last year returning £450 million to shareholders after the sale of stakes in Elenia and Anglia Water  - Numis played down the prospect of another distribution, saying 3IN was more likely to use the cash in new investments.

Charles Cade, head of investment companies research at Numis, said while the ‘strong uplift’ was welcome to 3IN investors, he said further growth in NAV was already priced into the shares's premium rating.

He believed future returns from the portfolio were likely to dip back to the 8-10% range as the company bedded down its acquisitions of the past two years. Last year 3IN bought 50% stakes in Attero, the Dutch waste treatment company, and Tampnet, an offshore telecoms network provider.

‘The sale appears to be a good price for 3IN as it was a low yielder in the portfolio,’ said Cade. ‘It completes the full rotation of the portfolio in the past three years when more than 80% was invested in core/regulated assets.

‘The portfolio now comprises around 90% in mid-market, growth companies, which management believes offers a combination of income and capital growth potential,’ Cade noted.

Investment company news brought to you by Citywire Financial Publishers Limited.

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