Strong HICL interims add fuel to fire in contentious TRIG merger

HICL Infrastructure (HICL ) interims will heap more scrutiny on its merger with Renewables Infrastructure Group (TRIG ) as it highlights the divergence in portfolios.

The proposed merger between the two InfraRed Capital giants to create a £5.3bn mega-trust has caused disquiet among investors, who argue that HICL’s infrastructure portfolio does not need to be exposed to TRIG’s renewable assets.

There have been accusations by HICL shareholders that the merger is a poor deal for them and will be ‘value destructive’. The discount moved out to 29% following a steep share price fall after the TRIG merger announcement.

The latest HICL interims will do little to quieten the dissenters. In the six months to end of September, net asset value (NAV) per share was up 1.9% to 156p, which was ahead of expectations. This is in comparison to a 2.7% decline in TRIG’s NAV over the same period.

Stifel analyst Iain Scouller said the results ‘highlight the divergence in the performance of HICL and its proposed merger partner TRIG’.

Chair of HICL Mike Bane used the results to back the merger, stating the combination ‘represents a unique opportunity to capture the key megatrends shaping the infrastructure market today, which increasingly straddle both core infrastructure and the energy transition’.

The HICL results mean the trust has delivered an annualised portfolio return of 10.3% versus 5.5% in September last year, which was ahead of expectations.

The strong returns were attributed to ‘operational outperformance from growth assets, an uplift in actual inflation and higher inflation expectations improving future cash generation within the portfolio, and a 0.9p lift came from £60m of share buybacks under the expanded £150m buyback programme.

Manager Edward Hunt sold seven UK public-private partnerships (PPP) assets in line with valuations at the end of March, taking total disposals over the past 24 months to over £730m.

‘Taking an active approach to portfolio rotation underlines the company’s valuation and supports our ongoing objective to deliver sustainable NAV growth,’ said Hunt.

‘This has been proven in the first half of the year with the disposal of seven UK PPP assets at NAV, enhancing key portfolio metrics and providing capital for accretive reinvestment.’

Proceeds from the disposals have been used to support buybacks and existing investment companies to allow for ‘long-term value creation’.

HICL reiterated its dividend target of 8.35p for the year, which is 1.1 times covered, excluding the profits on disposals. Dividend cover has increased from 1.07 times in March thanks to inflation-linked cash generation across the core assets.

It remains on target to hit a dividend of 8.5p in 2027.

‘HICL’s yield assets, representing 50% of the portfolio following announced disposals, delivered robust operational performance, with higher historic inflation feeding through into cash receipts,’ said Bane.

‘This supported dividend cover and helped to mitigate asset-specific challenges in a small subset of this portfolio segment.’

Bane said HICL has delivered on its strategy despite the testing macro backdrop and maintained that valuations for ‘high-quality core infrastructure assets in private markets remain robust and transaction volumes are resilient’.

‘HICL continues to actively assess new opportunities across sectors and geographies where these advance the company’s strategy to deliver long‑term shareholder returns,’ he added.

‘Primarily, this will focus on proprietary pipeline through existing investments and relationships across the InfraRed group.’

He said the trust is ‘not standing still’ in the face of a ‘reshaped’ economic backdrop.

‘We are evolving, adapting, and positioning the group to thrive in a changing infrastructure landscape, delivering sustainable value for our shareholders today and into the future.’