International Public Partnerships (INPP ) has cautioned its net asset value (NAV) will take a hit from adjustments to the discount rate but said dividends behind its 6% yield remain ‘more than covered’.

In a recent update ahead of half-year results in September, the £2.5bn core infrastructure fund said its assets have ‘performed strongly’ in the first six months of the year and ‘cash receipts remained in line with the company’s projections, enabling the net operating cashflows to more than cover the company dividend’.

However, INPP sought to dull down expectations for growth, stating that the ‘revised NAV will reflect changes to the macroeconomic environment that have occurred since 31 December 2022’.

This includes adjustments to the ‘discount rates used to value the forecast cashflows’ which are expected to have ‘a negative impact on NAV’, balanced against a softening in inflation and deposit rate expectations, which will be positive for the portfolio.

‘Overall, the board believes the combined effect will be to have a modestly negative impact on the 31 December 2022 NAV,’ said the trust.

Andrew Rees, an analyst at Numis Securities, which is INPP’s corporate broker, said that given the increase in risk-free rates since the start of the year, ‘it is not unexpected that the board is guiding to a modestly negative impact on the 30 June NAV From increases to the discount rate’.

The diversified infrastructure investor in everything from energy transmission and education to wastewater and courts said the resilience of the portfolio was attributed to ‘high levels of protection to increasing base rates’ through debt hedges or because assets benefit from ‘mechanisms as part of the regulatory regimes in which they operate, where the regulator includes a revenue allowance for the cost of debt’, with these two fallbacks covering 90% of the portfolio.

For the remaining 10%, increased debt costs are typically recovered from the end-user, such as UK and German train leasing investments, where ‘increased costs are expected to be passed through to the client at the relevant re-leasing point’.

INPP also flagged its high level of inflation correlation that provided predictability to its cashflows. Since launch in 2006, it has delivered average dividend growth of 2.5% and increased payouts for 15 consecutive years. It is currently working towards a dividend target of 7.93p and 8.13p per share for 2023 and 2024, respectively.  

‘The projected cash receipts for the company’s existing portfolio of over 140 investments are such that even if no further investments are made, INPP would be able to continue to meet its existing progressive dividend policy for at least the next 20 years,’ said the trust.

Despite this, at 129.4p on Monday, the shares remain at a discount of around 18% to Numis’ estimate of 157.1p NAV per share compared to the published 31 December number of 155.2p. The board said that this ‘materially undervalues’ a company which has realised value from investments and ‘utilised proceeds to reduce corporate indebtedness’.

The group has agreed the sale of digital infrastructure asset Airband, which provides alternative broadband to rural homes in the UK, that will help it pay off £20m of its £350m credit facility on which it has drawn £125m.

Managed by Giles Frost of Amber Infrastructure since launch in 2006, INPP has generated a 52.5% total shareholder return over 10 years.