GCP Infrastructure holds steady against a market backdrop of uncertainty and volatility

GCP Infrastructure Investments

GCP Infrastructure Investments (GCP) has announced its annual results for the year ended 30 September 2018. During the year, GCP maintained its dividend at 7.6p, increased its NAV by 1.7% to 112.49p per share and provided a share price total return of 4.8%. Ian Reeves, the fund’s chairman describes these results as being achieved, “against a market backdrop of uncertainty and volatility”. Earnings per share of 8.6 pence supported total dividend payments of 7.6 pence per share and the fund finished the year trading at a 10.6% premium to NAV.

Key highlights

The statement provides the following key highlights for the year:

  • Dividends of 7.6 pence per share paid for the year to 30 September 2018 (30 September 2017: 7.6 pence)
  • Total shareholder return for the year of 4.8% and total return since IPO in 2010 of 107.3%
  • Profit for the year of £73.4 million (30 September 2017: £46.7 million)
  • £100 million successfully raised through a significantly oversubscribed share issue
  • New credit arrangements of up to £150 million, with a temporary £15 million extension agreed post year-end.
  • Loans advanced totalling £377.3 million secured against UK renewable energy, social housing and PFI projects
  • Third party independent valuation of the Company’s partially inflation-protected investment portfolio of £1.1 billion (30 September 2017: £899.3 million)
  • Company NAV per ordinary share at 30 September 2018 of 112.49 pence (30 September 2017: 110.57 pence)
  • Post year end the Company made further investment commitments of £11.3 million and received repayments of £71.8 million.

Financial performance

GCP generated a profit of £73.4 million for the year and earnings per share of 8.6 pence supported total dividend payments of 7.6 pence per share. The chairman reports that returns on the investment portfolio were enhanced by the refinancing of a portfolio of rooftop solar loans and upward revaluations, contributing 1.1 pence per share and 2.8 pence per share respectively. However, due to several market and contractual challenges during the year, downward revaluations were made equivalent to 2.5 pence per share. The net asset valuation of the Company increased to £985.5 million (112.49 pence per share) from £874.6 million (110.57 pence per share) the previous year. At the end of the year the Company’s share price was 124.40 pence, representing a 10.6% premium to net asset value.

Investment activity

Despite a climate of uncertainty and volatility, GCP reports that investments in the year totalled £377.3 million, predominantly in secondary wind and solar projects, with the balance in social housing, PFI projects and drawdowns under existing commitments. The year also saw GCP’s first investment in the UK offshore wind sector, with a circa £80 million investment in an operational offshore wind farm. GCP says that the UK is the world leader in installed offshore wind capacity and the Board is pleased that GCP has made its first investment in a sector that has attractive asset characteristics, significant growth potential and current Government support through the contract for difference (CfD) mechanism.

GCP says that, during the year, it obtained limited exposure to shareholder interests in certain project companies in mature asset classes. These positions are expected to deliver attractive risk-adjusted long-term and predictable cash flows and introduce the potential for future upside.

Investment adviser’s commentary on the evolution of the infrastructure sector in the UK

“Infrastructure as an asset class is characterised by the financing of highly capital-intensive physical assets, often designed to provide a public benefit over the long term. Given the public service that they provide, such infrastructure assets typically benefit from public sector backing through long-term revenue support arrangements. As a result, new infrastructure development is linked to the availability of such support, which in turn is dependent at any time on prevailing policy.

Since the Company’s IPO in 2010, there have been varying levels of Government support for PFI and renewable energy projects. Political support for PFI has generally diminished and subsidy support for renewable energy projects has come and, in many cases, disappeared entirely. Conversely, housing benefit for supported living accommodation remains a highly protected budget.

Investment in infrastructure assets offers private sector investors exposure to long-dated and relatively predictable cash flows. Amid a background of historically low interest rates, demand for exposure to such investments has grown steadily over the last decade. A dependable yield derived from progressively more mature and better understood infrastructure sectors has become increasingly attractive to a wide range of investors, from individuals to large institutions.

The evolving balance of new infrastructure projects and investor demand has resulted in significant price movements throughout the infrastructure sector since the Company’s IPO in 2010.  Whilst the Company was originally established with a focus on subordinated debt investments in PFI projects, it has since invested in sectors, within the context of its investment policy and return target, that have offered the most attractive balance of risk and reward. Over time this has resulted in a diversified portfolio that has varied in terms of sector exposure, seniority of investment and construction risk. The Company’s ability to diversify has been, and continues to be, an important competitive strength. With a market capitalisation of over £1 billion, the Company provides investors with significant portfolio diversification and secondary market share liquidity.”

GCP Infrastructure holds steady against a market backdrop of uncertainty and volatility : GCP

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