Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by HICL 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
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Overview

HICL offers exposure to institutional-quality, lower-risk core infrastructure assets, aiming primarily to provide a steady, sustainable income stream with low correlation to GDP growth and equity markets.

HICL’s portfolio is diversified by asset type, sector and geography, meaning it has proved resilient through the COVID-19 crisis. However, 18% of the portfolio (three assets) has been impacted over the short term. These assets (plus a harsher regulatory determination for Affinity Water) meant the last financial year saw a meagre NAV total return of 1.9%.

Following the lockdown easings, HICL recently announced that of the demand-based assets, recent data for the two toll roads indicates a faster recovery from that assumed in the calculation of the 31/03/2020 NAV. Assuming no further lockdowns, this should positively impact returns going forward – through cash generation and valuation. The other asset (High Speed 1 in the UK) remains marginally behind the forecast. The manager remains mindful the recovery has a significant course to run and any restrictions to contain further pandemic waves would weigh on asset performance, as would deterioration in GDP forecasts for key demand-based assets’ jurisdictions.

Illustrating the strong income flow provided by HICL, in September this year IPO investors will have had their original capital (99.5p) back in dividends. The board has historically provided guidance for dividends up to two and a half years ahead. However, reflecting COVID-19 uncertainty, the board has revised its dividend guidance for the current financial year down from 8.45pps to 8.25pps, in line with the prior year. The board has not given guidance for the following year, but has promised to revisit guidance when things become clearer.

Analyst's View

HICL is designed to be highly resilient and deliver strong income returns year in, year out. The COVID-19 crisis has meant the current-year dividend is likely to remain at the same level as last year. The recent Interim Update Statement is to be welcomed, as it points towards a faster recovery for two of the three demand-based assets that have been impacted.

Offering a dividend of 8.25p, HICL offers a prospective yield of 4.8%. This compares to global equity-income trusts’ historical yield of 4.4%. With significant clouds on the equity horizon, HICL’s yield – both in extent and solidity of the cash flows backing it – looks increasingly attractive in an environment in which the stability of income streams will become a key area of investor focus.

As we illustrate in the Portfolio section, there is visibility on cash flows for investors in HICL. Compared to many other investments elsewhere, a ‘held’ 2021 dividend will likely turn out to be bucking the trend when compared to global equities in our opinion.

Aside from two out of the three demand-based assets performing ahead of that modelled for the 31/03/2020 valuation, the manager has indicated that demand for yielding infrastructure investments remains high (as at 16/07/2020). The manager expects a lower discount rate may be introduced for the 30/09/2020 NAV calculation, which is likely to be announced in November. In this context a 14% premium to NAV looks acceptable for such solid investment attributes.

bull bear
Lower-risk, institutional-quality infrastructure assets within a liquid vehicle that has scale
Extended COVID-19 impact on GDP will act as a drag on income generation
Steady and resilient yield, looking increasingly attractive relative to equity-income funds
Capital is at risk, unless manager is able to continue to extend the weighted average asset life
Uncorrelated returns to equities, discount-rate reduction flagged
Dividend likely to be only 80–90% covered in the current year
Continue to Portfolio
2022 Kepler Alternative Income Rated Fund

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

Fund History

16 Jun 2022 Fund Analysis
HICL is in a prime position to benefit from higher inflation…
11 May 2022 Catch a tiger by the tail
As inflation bites harder than it has for decades, we consider the best ways for investors to hang on to their capital...
04 May 2022 Time to change the record
We ask whether equities can still offer meaningful diversification or whether investors need to turn to alternatives…
09 Mar 2022 Private markets: A closer look at infrastructure and renewables
We examine the £27bn listed Infrastructure and Renewable Energy Infrastructure sectors…
21 Dec 2021 Fund Analysis
Cash covered dividend and link to inflation underlines HICL’s appeal…
01 Dec 2021 How to protect your portfolio from inflation
We highlight trusts which could appeal in an environment where 'transient' inflation is here to stay...
16 Jun 2021 Fund Analysis
Covered dividend target this year means HICL looks less expensive than peers…
12 May 2021 Riders on the storm
We look at the yields in the alternatives space and how they have been affected by the pandemic…
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
09 Sep 2020 Time to switch horses?
We look at what returns are likely from equity markets in the coming decade and identify which alternatives could offer similar or greater returns for lower levels of risk…
13 Aug 2020 Fund Analysis
HICL offer institutional quality infrastructure assets, delivering an attractive income...
23 Apr 2020 Sucker punch
Two of our analysts debate the merits of equity income and alternative income trusts at this point in time...
29 Oct 2019 Fund Analysis
Institutional quality infrastructure assets, delivering an attractive income...
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
06 Mar 2019 Stairway to heaven
Our research shows that reinvesting the income generated by alternative assets could add a significant boost to long-term portfolio performance…
14 Feb 2019 Fund Analysis
Predictable cashflows, uncorrelated to the economic cycle
View all

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