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’s primary aim is to provide a sustainable and steady income stream, with low correlation to changes in GDP or equity markets. 2020 provided arguably the sternest test yet for HICL, with several of the largest assets being adversely affected by travel restrictions as a result of the COVID-19 pandemic. Dividend cash cover for the year to 31 March 2021 fell, but the payout to shareholders was unaffected, illustrating the resilience of HICL’s model to sudden shocks.

The majority of the portfolio is invested in PPP and regulated assets, which have been largely unaffected by COVID-19. However, it is the demand-based assets constituting 20% that have given an element of trouble. Happily, as discussed in Portfolio, it would appear that these assets are potentially on a path to recovery. The A63 in France is already operating above pre-COVID-19 levels, whilst Northwest Parkway is at 80% of pre-COVID-19 levels. HS1 is taking longer to recover, but the managers budget a return to 100% of pre-COVID revenues by March 2025.

Since launch, HICL has achieved NAV total returns of 8.9% per annum (to 30/09/2021). These returns have had a contribution from interest rates falling over the life of the trust. However, for the first time in many years, inflation could start to be a contributory factor in total returns. If inflation becomes persistent, this will potentially feed through into long term expectations rising, which would see a positive impact on NAV too.

Having paid an uncovered dividend last year, the six months to 30/09/2021 has seen revenues increase such that dividends were cash covered 1.02x. HICL currently offers a prospective dividend yield of 4.7%.

Analyst's View

HICL has an attractive and diversified portfolio of private core infrastructure investments, all of which require a significant level of expertise to evaluate and manage. These assets also require an investment scale that HICL has, with £3bn of gross assets. HICL offers a liquid and simple way of accessing the asset class – and at a relatively low cost (see Charges).

Aside from the resilience shown by the portfolio during 2020, in our view, investors’ focus should be on the attractions of HICL’s link with inflation. If inflation was 1% higher in all future periods than the rates assumed in current valuations, the expected return from the portfolio (on a gross basis, before costs) would increase by 0.8% from 6.6% to 7.4%. The board and manager have not yet incorporated any change in long term inflation expectations into valuations. For those investors wishing to provide an explicit hedge to rising and persistent inflation, HICL is clearly a potential candidate.

At a dividend level of 8.25p, HICL offers a prospective yield on the current share price of 4.7%, which is attractive to many other income sources. This yield, hopes of further recovery in HICL’s demand-based assets, and the prospects of inflation benefitting total returns all explain the current premium to NAV of 12%. Uncertainty remains on the path of the recovery trajectory for HICL’s demand-based assets, but if the current trends continue, this will be a positive for shareholders.

bull bear
Lower-risk, institutional-quality infrastructure assets within a liquid vehicle that has scale
If COVID-19 continues to impact to demand-based assets, will act as a drag on income generation
Steady and resilient yield, proven defensive qualities during 2020 COVID-19 crisis with dividend that is cash covered once again
Capital is at risk if the manager is unable to continue to extend the weighted average asset life
Uncorrelated returns to equities
Dividend uncovered last 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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