3i Infrastructure heralds transaction recovery with Valorem sale

3i Infrastructure (3IN ) has offloaded its stake in green energy operator Valorem at a hefty premium. This comes as private transaction market transactions continue to pick up, putting the trust on track to deliver a fully covered dividend.

Managers of the £2.9bn fund, Scott Moseley and Bernardo Sottomayor, provided a positive update for the three months to the end of January, which included the sale of Valorem at a 31% premium to its pre-transaction valuation, delivering net proceeds of €309m.

They said the sale ‘provided evidence’ of demand for ‘high-quality infrastructure companies’ in private market transactions and confirms the ‘latent value within our portfolio’.

‘We continue to see good earnings momentum in the portfolio, driven by our strategic focus on prioritising growth investments in our existing portfolio companies,’ they said.

The sale of Valorem meant the company had available liquidity of £466m at the end of the period, including a cash balance of £266m and undrawn borrowing facilities of £200m available under its £900m revolving credit facility.

Income remained in line with expectations, with total income and non-income cash in the period totalling £58m, 18% higher than the prior year. This keeps the trust on track to hit its full-year 2025 dividend target of 12.65p per share, a 6.3% increase on the previous year.

‘We are on track to deliver our dividend target for the year, which is expected to be fully covered by income,’ said Moseley and Sottomayor.

The pick-up in the transaction market and a covered dividend will hopefully help rally the shares, which have lagged a recovery in the portfolio value. Over the past year, the net asset value (NAV) has risen 10.3% and is up 42.5% over three years, but the shares have risen just 0.1% and 2.4% over the respective periods, leaving the trust trading at a 17.1% discount.

A number of the fund’s investments made progress over the three-month period, as TCR – Europe’s largest asset manager of airport ground support equipment – confirmed new contract wins and an accelerated expansion. In mid-January it was selected to provide centralised all-electric ground support at JFK International Airport.

‘This represents a step-change in its presence in North America and a strong platform for further expansion into this largely untapped market,’ said the managers.

Data services communications group Global Cloud Xchange committed to invest $34m to acquire new capacity on the India-Asia-Xpress and India-Europe-Xpress cable systems, which added ‘strategically important reach’ to its network in attractive growth networks.

The managers said the sales pipeline for the company’s capacity ‘remains strong, driven by the increasing need for subsea fibre capacity and premium pricing dynamics’.

Future Biogas, the largest anaerobic digestion plant developer and biogas producer in the UK, completed construction of a new site and connected it to the gas grid, increasing its operational scale.

It has already signed a 15-year agreement with AstraZeneca for the green gas produced and the managers said ‘business performance continues to be strong, supported by higher gas prices and strong production volumes’.

Sale success

3i peer GCP Infrastructure (GCP ) reported a small tick down in its NAV, which lost 0.05p in the final three months of 2024 to end the year at 105.18p.

Gravis Capital Management’s Philip Kent and Max Gilbert, who run the fund, said an uplift in forecast electricity prices has led to ‘increasing forecast cash distributions to the company from certain renewable energy investments, contributing 0.6p per ordinary share’.

However, this was offset by ‘actual generation across the renewable energy portfolio that was materially below budget, as the UK suffered from poor solar irradiance and low wind speeds, which led to a reduction of 0.76p per ordinary share’.

The fund has been benefiting from the recovery in the transaction market, disposing of a portfolio of rooftop solar assets installed on domestic properties in the UK. Although the portfolio was sold at its prevailing valuation, with no premium, the fund still netted proceeds of £6.8m.

Post-period, the company announced it had sold its interest in two operational onshore wind farms, generating proceeds of £16.5m with a further £1.3m of deferred proceeds to come, and £1m of tax benefits.

The £624m trust is still in the process of selling assets to pay down its debt and return £50m of capital to shareholders as part of its capital allocation policy. At the end of the year, the fund had £61m of outstanding debt under its revolving credit arrangements.

The managers said the 9.7%-yielding portfolio ‘continues to perform materially in line’ with expectations and noted its ‘mature, diverse and operational portfolio provides defensive access to stable and predictable income’.

‘Long-term and structural demand for infrastructure, and particularly infrastructure debt, offers investors an attractive exposure to an asset class whose performance is not correlated to wider markets and benefits from long-term and partially inflation-protected income,’ they said.

GCP has undertaken a number of successful initiatives to get its shares back on track and lower its discount. The NAV is up just 2.3% over one year but the shares have enjoyed a 7.7% uplift, leaving it trading at a 31.8% discount.