The board of Pantheon Infrastructure (PINT ) has said it will pay a progressive dividend from this point on after exceeding the targets set out at launch in late 2021.

Declaring a second interim dividend of 2p per share, which brings the full payout to 4p, chair Vagn Sørensen said the manager had invested all the £400m proceeds raised at launch as well as from the £87m C-share issue in 2022.

This year’s dividend is paid out from the 13-strong portfolio’s increasing value over the 12 months to the end of December, with underlying returns of 10.4% including dividends, which beat the 8%-10% targeted return.

Considering the anticipated holding period of five-to-seven years for each asset, the current dividend cover of 0.2 times is unlikely to improve until the first exit, portfolio manager Richard Sem told Citywire, given that spare cash and any proceeds from investments are recycled.

‘The strategy is to hold assets, drive growth and realise after five to seven years, said Sem (pictured below). ‘We’ll then recycle capital and profits into growing the portfolio. We can expect dividend cover from then as we go into a steady state.’ He added that the first exit would likely be in 2026.

The 5.4%-yielding portfolio saw its valuation increase by 7.8% to 106.6p per share over the year, despite the sector’s most conservative discount rate of 13.6%. This not only incorporates global bond yields across the US, Europe and the UK, but also the fact that some businesses are valued on an enterprise basis rather than an equity basis, meaning debt has to be subtracted.

Sem noted that the closing share price of 74p on Tuesday, 31% below NAV, indicated an effective valuation discount rate in the high teens. The shares closed last week at 77.6p.

He added that on top of the current share buyback programme, which so far has seen the board spend £8.4m and earmark a further £10m, interest rate cuts would help to rerate the shares as they would make bond yields less attractive.

He highlighted the portfolio’s inflation linkage and diversification, with digital infrastructure making up 44% of assets, power and utilities constituting 27%, and renewable and energy efficiency 17%.

While share buybacks have been funded by cash, which sat at £29.4m at year end, further liquidity is available through the recently extended £115m revolving credit facility. Of that, £46.5m is available to invest.

Sem flagged that there continued to be increased appetite for assets with a high degree of inflation linkage and those that play a direct role in the energy transition, with evidence of realisations at premiums to carrying value across the sector.

While reiterating the target five-to-seven-year holding period, for PINT to part with an asset, Sem said an offer would not only have to deliver a strong investment return, but also a high cash multiple, with the latter more difficult to ensure when exiting earlier than planned.

PINT half full

Analysts were positive, with Deutsche Numis’ Colette Ord highlighting the share price as an attractive entry point for a diversified portfolio that has the potential to deliver attractive risk-adjusted returns over time.

Liberum’s Alex O’Hanlon noted that while valuations will not be proven for a number of years via disposals, the shares have derated more than core infrastructure funds, which have more exposure to rising interest rates.

‘We continue to view a wide pipeline, an experienced manager and a very attractive fee structure with no performance fee and ongoing charges at 1.35% as one of the most attractive ways to access the core-plus market’, On’Hanlon said, reiterating a ‘buy’ recommendation with a price target of 115p. 

Since launch, underlying returns total 13%, while the shares have dropped 24%, according to Morningstar data. 

Source: Morningstar