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Fund Profile

BBGI Global Infrastructure 22 November 2023

Disclaimer

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.

Overview
BBGI’s conservative and defensive portfolio offers returns directly linked to inflation…
Overview

BBGI Global Infrastructure (BBGI) occupies lower-risk ground in the UK-listed infrastructure sector. With a globally diversified portfolio of 100% availability-style social infrastructure assets, revenues are highly predictable.

An important feature of BBGI’s investments is that cashflows’ inflation linkage of 0.6% is a mechanical feature of the contracts which govern BBGI’s stewardship of its assets. With no caps or other terms which may be dilutive to returns from higher inflation, contractual payment increases linked to inflation occur at least annually. As we discuss in the Portfolio section, these are all reasons why the board has had the confidence to raise the dividend target for the financial years ending December 2023 and December 2024 to an expected 6% annualised increase from the 2% annualised growth previously targeted.. The 2023 dividend target represents a yield of 5.7%.

We discuss the historic NAV performance in more detail in the Performance section. The major contributors to the consistent and resilient performance BBGI has delivered since IPO, are the low-risk investment strategy, conservative financial management and global diversification within the portfolio, but also the value driven approach to managing the assets and the trust. In particular, as we discuss in the Gearing section, the modest level of corporate-level borrowings has helped in today’s higher interest rate environment. Currently, only £7.9m of the flexible credit facility is drawn on a net basis (or 2.4% of NAV), which the team are targeting to be repaid with excess cash by 31 December 2023.

In a rising interest rate environment, refinancing risk is a potential challenge for many companies and trusts. Despite employing quite significant leverage on an asset level basis, the vast majority is fixed rate debt amortising over the length of its concession period, meaning BBGI is not exposed to interest rate or refinancing risk. Furthermore, higher deposit rates at banks provide a positive tailwind to BBGI’s cashflows, given the sizable cash balances held by the underlying project companies, which earn higher interest rates.

Analyst's View

BBGI has delivered steady, growing dividends since it was launched in 2011, with a compound average increase in the annual dividend of 3.4% between 2012 and 2022 which has outpaced UK CPI. Since inflation has become a significant feature, BBGI has so far shown that it offers investors a very tangible link with inflation, with target dividend increases of 6% for 2023 and 2024.

With conservative assumptions built in due to BBGI’s lower risk availability-style investments, BBGI’s weighted average discount rate of 7.2% is an attractive risk premium over the average risk-free rate within the portfolio. Deducting the OCF (see Charges section) leaves shareholders with a prospective NAV IRR of 6.3%. Rather than being fixed in nominal terms, BBGI’s inflation linkage means that actual returns will vary depending on inflation (as well as other variables, see Performance section). As such, when considering these prospective returns, the spread over 15-year index-linked gilts (assuming 2.5% inflation) remains attractive; currently we estimate at c. 2.7%.

The internal management structure gives BBGI a cost advantage over peers, as we discuss in the Charges section. The team report that all of their assets are continuing to perform well, and clients are happy. Importantly, the conservative and defensive approach to management of the assets and the trust has meant no assets are in lock-up or default, and the team are optimistic that they will continue to deliver inflation linked, uncorrelated NAV returns into the future, underpinned by a solid and progressive dividend. As we discuss in the Discount section, with bond yields having potentially plateaued, this could be an interesting moment to consider BBGI’s attractive prospective real returns, especially with its current relatively wide discount of 6.8%, which compares to its five-year average premium of 17%.

Bull

  • Lower-risk 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 team fully aligned with shareholders

Bear

  • Discount to NAV could widen yet further
  • Geographic diversity means FX movements will affect cash flows (for good or bad), but hedging activity should protect the portfolio (an adverse 10% movement of all currencies against GBP would only impact NAV by 3%)
  • Portfolio is made up of illiquid investments
Continue to Portfolio
2024 Kepler Alternative Income Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for alternative income... Find out more

Fund History

21 Mar 2024 BBGI Global Infrastructure
Duncan Ball
Join us for this webinar as part of our month-long online series 'Themes for your ISA in 2024' hosted by the team at Kepler Trust Intelligence throughout March...
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17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
22 Dec 2023 Successfully passing the litmus test
BBGI’s resilient investment strategy has held water in a tough period for infrastructure investors…
22 Nov 2023 Fund Analysis
BBGI’s conservative and defensive portfolio offers returns directly linked to inflation…
22 Sep 2023 What the Sopranos tells us about valuing records
Unpredictable sales spikes and a lack of historical data on cash flows make it hard to put a price tag on music rights...
08 Sep 2023 Plotting a soft landing
Alternatives have taken a beating over the past two years. We may not be through the shoals yet but some trusts offer both upside potential and downside protection…
06 Sep 2023 Results analysis: BBGI Global Infrastructure
BBGI’s availability-style holdings proved robust in H1…
09 Aug 2023 Should I stay, or should I go?
Re-appraising the invitation to the bond party…
02 Aug 2023 Isn’t it ironic?
Alternatives: not equities, not bonds, but a bit of both...
26 Jul 2023 A true all rounder
How availability-style social infrastructure assets protect investors from inflation and rising interest rates while positively benefiting from both…
24 May 2023 Five alternatives for income investors
Watch the presentations from our event focused on trusts delivering income via a diverse range of strategies…
19 May 2023 Fund Analysis
BBGI’s increased target dividends is underpinned by its inflation linkage…
17 May 2023 BBGI Global Infrastructure
Duncan Ball
This webinar is part of our online series in May 'Alternatives for income investors' hosted by the team at Kepler Trust Intelligence 15-19 May…
Watch Recording
14 Apr 2023 Hope for the best, expect the worst
Some trusts may help investors that don’t want to make bold predictions…
03 Apr 2023 Results analysis: BBGI Global Infrastructure
Last year’s performance shows why BBGI’s inflation linkage is so compelling…
23 Mar 2023 Navigating inflation with infrastructure assets
BBGI’s availability-style holdings offer strong protection against inflation…
22 Mar 2023 Good vibrations
We identify some sectors with structural discounts we think could close over time…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
29 Dec 2022 Coming into its own
Infrastructure as an asset class holds considerable appeal for investors against a volatile backdrop for broader markets…
09 Nov 2022 Fund Analysis
BBGI has clear differentiating features within the infrastructure peer group...
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
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