Pantheon Infrastructure (PINT ) fund managers have said they will be more ‘considerate’ about making new investments in future as they grapple with share buybacks and an uncovered dividend.

The £366m investment trust, one of the last to launch in 2021 before the IPO market froze, disclosed in half-year results today that it does not expect its 5%-yielding dividends to be covered by cash earnings in the short term due to its approach of co-investing with infrastructure fund managers.

‘The main reason for this is that the co-investment model means the company does not have direct control of underlying distributions, and many of the portfolio companies consider the re-deployment of free cash flow into growth capex or M&A activity to be a more effective use of cash flow than making distributions,’ the company said in its half-year results.

Unusually, the company sought to argue that its 2p per share interim dividend was covered 1.6 times by the 3.1p increase in net asset value (NAV) per share in the six months to 30 June.

Stifel analyst Iain Scouller challenged this, saying dividend cover should be measured by net revenue after deducting expenses.

‘On this basis, the dividend is uncovered with revenue earnings per share of a -0.4p loss, reflecting interest income of +£1.8m, which is more than offset by expenses of -£3.3m,’ analyst Scouller wrote in a note.

‘In the analyst meeting it was mentioned there was a £3m distribution received during the period, but this means the dividend is still significantly uncovered,’ he added.

Pantheon’s linking dividend cover to the gain in its portfolio came as the company did not follow rivals in raising its discount valuation rate in line with sharp rises in government bond yields.

Lifting discount rates has the effect of depressing net asset values and by not doing this Pantheon could say its NAV rose from 98.9p to 101p per share in the first half.

Scouller, who had anticipated NAV would be between 94p and 98p per share, said the high discount rate would be a cause of concern for investors.

‘We had expected some increase in the discount rate to negatively impact the NAV, given global bond yields have increased,’ Scouller said.

Analysts at Liberum disagreed, saying Pantheon’s 14% discount rate was already the highest in its sector and provided a ‘significant risk premium’ against high UK interest rates.

While critical, Scouller retained a ‘buy’ recommendation on the shares given at last night’s close of 77p they stood 24% below the new NAV. Today the stock edged up 0.6p to 77.6p.

Pantheon partner Richard Sem told Citywire there had been a small 30 basis point (0.3%) rise in the discount rate from 13.7% in January after his team added GD Towers and National Grid assets to the portfolio.

With infrastructure assets still generating strong demand from private capital, he questioned the need to raise discount rates significantly. ‘There seems to be some sort of disconnect between where the private and the public are marking these assets,’ he said. ‘In short, we don’t think shareholders have quite got it right.’

When asked how long it would take for the dividend to be covered, Sem said assets should start to be realised, or sold, in five to seven years to provide added support for shareholder payouts.

Portfolio manager Ben Perkins said there was no danger the company would back track on its plan to pay 4p in dividends this year, moving to progressive rises in following years.

‘We have a target dividend to meet, and that’s very important to us,’ said Perkins. ‘We will make sure that we meet that. And, and that’s why we’re very considerate of our liquidity planning.’

Having deployed almost all its capital, committing £42m to European telecoms towers operator GD Towers, £20m to pan-Nordic fibre operator GlobalConnect and £35m to Zenobe, a UK-based battery storage and electric vehicle specialist, Perkins said the team would think carefully before making further investments as it had an ongoing share buyback programme to honour as well as the dividend to support.

Pantheon Infrastructure now has 13 investments and despite seeing an ‘awful lot of opportunities in a very buoyant pipeline’, Perkins said the team would hesitate to do more having £50m left in cash and a revolving credit facility increased by £52.5m to £115m in June.

‘That doesn’t mean we’re going to invest that £50m given the cost of debt,’ he told Citywire. ‘And obviously, where the discount is right now, I think we have to be considerate and measuring up opportunities.’