HICL Infrastructure PLC
Interim Results For The Six Months Ended 30 September 2024
Highlights
- The portfolio delivered an annualised underlying return of 5.5% (30 September 2023: 8.2%) before the impact of changes to macroeconomic assumptions.
- Operational performance in the period was broadly in line with plan. The portfolio return lagged expectations primarily due to increased forecast cost risk associated with facility condition across a subset of HICL’s PPP assets. This was reflected in a discount rate increase applied to 36 UK PPP assets (29% of the portfolio by value) and specific forecast cost adjustments to a subset of these assets.
- HICL’s growth assets continued to perform well operationally, delivering in line with business plans over the period, and progressing significant capital investment which underpins future growth.
- The Net Asset Value (“NAV”) per share decreased by 1.7p to 156.5p (31 March 2024: 158.2p), principally reflecting the aforementioned adjustments to the subset of UK PPP assets. This was also the main driver of the increase of the portfolio’s weighted average discount rate to 8.1% from 8.0%, with the weighted average risk-free rate for the portfolio increasing to 4.2% from 4.1%.
- Dividend cash cover improved to 1.07x (March 2024: 1.05x), or 2.06x including profits on disposals completed in the period (March 2024: 1.37x). This positive trend is expected to continue, supported by higher historical inflation flowing into cash receipts and growth assets increasing their yield contributions over time.
- The Board reaffirms that HICL remains on track to deliver its target dividend of 8.25p per share for the financial year ending 31 March 2025 and also reiterates its dividend guidance of an increase to 8.35p per share for the year ending 31 March 20262.
- HICL’s approach to capital allocation in the period prioritised balance sheet enhancement, providing the Company with over £400m of liquidity available for selective capital deployment. Disposal proceeds received enabled the full repayment of HICL’s £400m Revolving Credit Facility (“RCF”) and commencement of a £50m buyback programme, of which £17.6m had been completed by 30 September 2024.
- Helen Price, HICL’s CFO, will be leaving InfraRed in December 2024 and has stepped down from the HICL Investment Committee. In line with InfraRed’s succession planning a CFO has been appointed to be responsible for HICL and is expected to join the business in Q1 2025.
- Current market conditions are expected to provide opportunities to progress the Company’s strategy, including through selective portfolio rotation where opportunities are accretive relative to share buybacks. The long-term drivers of infrastructure development remain highly supportive for HICL’s strategy.
1. Defined as the return on the portfolio that includes the unwind of the discount rate and portfolio performance (excluding macro-economic performance).
2. This is a target only and not a profit forecast. There can be no assurance that this target will be met.
Summary Financial Results (On an investment basis)
| For the six months to | 30 September 2024 | 30 September 2023 |
| Income | £71.7m | £10.9m |
| Total Return | £45.0m | £(27.6)m |
| Earnings / (loss) per share | 2.2p | (1.4)p |
| Target dividend per share for the financial year to 31 March | 8.25p | 8.25p |
| Net Asset Value | 30 September 2024 | 31 March 2024 |
| NAV per share | 156.5p | 158.2p |
| Interim Dividend | 2.06p | 2.07p |
| NAV per share after deducting interim dividend | 154.4p | 156.1p |
Chair’s Statement
The first half of the financial year has seen HICL’s balance sheet strengthened through the receipt of disposal proceeds, providing liquidity and flexibility for highly selective capital deployment.
In a period of muted transaction activity HICL successfully completed the final two accretive disposals that had been previously announced, including the entire equity interest in the Northwest Parkway toll road. Proceeds have been used to repay the Revolving Credit Facility in full and to initiate HICL’s first share buyback programme. This approach to capital allocation prioritises balance sheet strength. It positions the Company favourably to generate further returns from share buybacks and to capture investment opportunities that exceed those returns.
Portfolio performance in the period lagged expectations, predominantly due to increased forecast costs linked to facility condition in a subset of the PPP portfolio. The Group’s growth and construction assets delivered solid performance, highlighting the benefits of HICL’s deliberate transition towards a diversified core infrastructure portfolio. Cash distributions from the portfolio increased overall, with an associated increase in underlying dividend cash cover to 1.07x for the period (March 2024: 1.05x)1. This has enabled the Board to reiterate the dividend guidance of 8.25p per share for financial year 2025, growing to 8.35p per share for the financial year 2026. The Company’s investments benefit from defensive and growing long-term cash flows which are substantially insulated from economic and financial market volatility.
The Company’s Investment Manager continues to observe resilient valuations for high-quality core infrastructure assets across the private market, though transaction volumes remain below historical averages. In combination with the Company’s recent transaction experience, these market dynamics give the Board confidence in the Directors’ valuation of HICL. The share price as at 30 September 2024 implies a long-term total portfolio return of 8.6% p.a. net of costs2 and over a weighted average asset life of 29.4 years. The Board believes this represents compelling risk-adjusted value for prospective marginal buyers.
Central banks have begun the rate cutting cycle in HICL’s markets, making defensive propositions such as HICL’s more attractive, as the implied equity risk premium over risk-free rates increases. The Board and the Investment Manager have evolved the Company’s portfolio to better position HICL to not only deliver its key defensive attributes, but also offer growing income and an increasing capital base. Compared with fixed income, HICL offers investors a unique mix of higher nominal returns, inflation protection, the potential for capital growth, and outperformance from active management.
Outlook
The Board believes that the current public market discount to private valuations for high-quality core infrastructure assets represents a compelling opportunity for investors with a longer-term horizon.
The Group’s capital allocation priorities have been clearly set out and are being delivered against; the Group’s RCF is fully repaid and the share buyback programme is well underway. Variable market conditions are expected to provide opportunities to further enhance portfolio construction and generate shareholder value through selective investments where these are accretive relative to further share buybacks. HICL has the balance sheet strength and available liquidity to successfully capture these opportunities in line with the Group’s long-term strategy.
1. Excluding profits on disposal versus original acquisition cost of £82.7m (September 2023: £25.2m). Including profits on disposal cash cover is 2.06x (September 2023: 1.35x)
2. Based on discount rate, less ongoing charges ratio, adjusted to reflect the share price discount to the NAV using published discount rate sensitivities