BBGI Global Infrastructure 19 May 2023
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by BBGI Global Infrastructure. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
To provide investors with secure and highly predictable long-term, high-quality, inflation-linked cash flows which are underpinned by government-backed counterparties through a globally diversified portfolio of essential infrastructure investments. To actively manage and enhance the value of the investment portfolio with the intention of maximising return over the long term. To target an annual dividend payment with the aim to increase this distribution progressively over the longer term. At IPO, to target an IRR of between 7% and 8% which is to be achieved over the longer term.
BBGI Global Infrastructure
Duncan Ball; Frank Schramm; Michael Denny;
Association of Investment Companies (AIC) Sector
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BBGI Global Infrastructure (LON:BBGI) has a £1.1bn portfolio of low-risk essential social infrastructure assets, diversified around the world across highly rated investment-grade countries. The portfolio consists of 56 investments with a common link in that they are all availability-style, backed by government revenues with high-quality inflation linkage. BBGI has no exposure to demand-based or regulated investments.
As we discuss in the Portfolio section, having pure exposure to availability-style assets has meant that cashflows have been secure and predictable, and none have been locked-up. BBGI’s geographic diversity is also a differentiator to peers which typically have a strong bias towards the UK compared to BBGI’s current 32%.
In other ways too, BBGI is differentiated. There has been an internal management team behind BBGI since IPO in 2011. This set-up gives BBGI a cost advantage over peers, as we discuss in the Charges section, but also means that the team are incentivised to manage the assets for the benefit of shareholders, and to only grow assets under management where it is beneficial to investors.
BBGI has paid growing dividends since it was launched in 2011, having delivered a compound average increase in the annual dividend of 3.1% between 2012 and 2022. Reflecting the steady and predictable income flow from the underlying assets, the board aim to give shareholders as much visibility as possible. As a result of higher inflation, thanks to the portfolio’s direct link to inflation, the dividend targets for 2023 and 2024 have recently been raised by four percentage points over previous targets, leading to sector-leading dividend growth of 6% per annum from the 2022 level. The new target dividend of 7.93p represents a dividend yield of 5.3%.
It is clear from BBGI’s recent results and long-term performance that its resilient and defensive strategy is set up to continue to provide long-term, predictable, inflation-linked, and sustainable returns. In being internally managed BBGI has the lowest OCF in the peer group. These factors have been contributors to BBGI delivering an annualised return since IPO of 9.1% on a NAV total return basis. The NAV total return in 2022 was 11.8%.
As we discuss in the Performance section, BBGI has proved attractive and defensive even within its peer group of infrastructure trusts thanks to the sole focus on availability-style assets. BBGI’s portfolio provides reliable returns, and the diversification across economies and political systems helps to ensure that variability in overall returns should remain low.
In the current inflationary environment, the portfolio’s direct link with inflation appears highly attractive. BBGI has announced target dividend and NAV growth in excess of peers’, despite those peers’ optically higher linkage to inflation (see Portfolio section) which have not yet seen NAV uplifts aligned with their reported inflation linkage. This is a key attraction of BBGI, and perhaps explains the fact that BBGI trades close to NAV, when peers are at discounts. Inflation expectations factored into the current NAV are relatively prudent, and, for the financial years after 2024, are unchanged from a year ago, illustrating conservatism. In our view, there is a clear upside for shareholders should inflation remain persistent.
- Clear investment proposition, targeting 100% availability-style assets with strong ESG credentials and a direct link to inflation
- Geographic diversity helps smooth returns
- Internally managed, meaning BBGI’s scale leads to a clear cost advantage and fully aligned team
- Any premium to NAV may give way to a discount if the attraction of shares to investors recedes
- Geographic diversity means FX movements will affect cash flows (for good or bad), despite hedging activity which should protect the portfolio (an adverse 10% movement of all currencies against GBP would only impact NAV by 3%)
- Rising interest rates around the world mean investors have a larger range of options for yield