Investment trust insider on HICL Infrastructure

Investment Trust Insider on Perpetual Income and Growth

Investment trust insider on HICL Infrastructure – James Carthew: HICL may wobble, won’t fall down

Shares in the three largest listed infrastructure stocks – HICL (HICL), 3i Infrastructure (3IN) and International Public Partnerships (INPP) – today stand on respective premiums of 8.6%, 27% and 6.3% above net asset value (NAV).

Eighteen months ago they traded at discounts after shadow chancellor John McDonnell scared investors with a speech at the 2017 Labour Party conference in which he claimed private finance initiatives (PFI) were draining resources from the NHS and vowed to bring these contracts back ‘in-house’.

McDonnell compounded investors’ concerns in February last year with a statement that parliament might decide some PFI contracts could be nationalised without compensation. In between those dates, the sector had been left reeling by the collapse and liquidation of Carillion, a leading supplier of outsourced services to a range of PFI/PPP projects.

With a market value of £3 billion, HICL Infrastructure is the largest and oldest in the sector, having launched in March 2006. Over three-quarters of the portfolio is based in the UK, with the balance in the rest of the European Union and North America.

Just over 70% is in public-private partnership (PPP) projects ranging from schools and hospitals to prisons and police stations. These are ‘availability-based’ assets in which HICL earns money if the project is available for use and is maintained to the required standard.

The rest of the portfolio is divided between ‘demand-based’ assets – for example, it owns some toll roads where the revenue depends on how many drivers use the road – and ‘regulated assets’ – including HICL’s investment in Affinity Water, which is regulated by Ofwat.

The underlying themes with HICL’s investments are… read more here