4 March 2024
HICL Infrastructure
PLC
"HICL" or "the Company" and, together with its subsidiaries,
"the Group", the London-listed infrastructure investment company
managed by InfraRed Capital Partners Limited ("InfraRed" or "the
Investment Manager".)
Interim Update
Statement
The Board of HICL is issuing this
Interim Update Statement, which relates to the period from 1
October 2023 to 29 February 2024.
Mike Bane, Chair of HICL
said:
"HICL's high quality portfolio
continues to demonstrate its resilience amidst broader macro
volatility, supported by significantly accretive asset rotation
announced in the period. Effective capital allocation remains
crucial, and the Board has deployed disposal proceeds to reduce the
balance on the Company's Revolving Credit Facility, make a highly
accretive incremental investment and launch a share buyback
programme."
Key
Highlights
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Solid operational performance across
the portfolio in the period demonstrating the resilient nature of
the underlying assets. The Company is on track to deliver its
target dividend of 8.25p per share for the financial year to 31
March 2024, with cash generation in line with
expectations.
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Sale of entire stake of Northwest
Parkway ("NWP") for a net consideration of US$232m at a c.
30%1 premium to the most recent valuation. Up to £50m of
the sale proceeds reserved for a share buyback
programme.
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Acquired additional
3.1% interest in A63 Motorway in France for £20m at highly accretive terms.
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£200m of disposal proceeds received
and used to reduce fund-level gearing. The RCF is expected to be
fully repaid with the proceeds of the Northwest Parkway
disposal.
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Focus remains on responsible capital
allocation, with future disposal proceeds to support the evaluation
of selective investment opportunities where they enhance the
portfolio's key financial metrics.
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Portfolio Performance
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Overall, the portfolio performed in
line with expectations in the period, underpinned by its
high-quality, inflation linked cashflows and limited variable
interest rate exposure.
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In December 2023 HICL acquired
a further 3.1% interest in the A63 Motorway
concession in France for
c. £20m. The
acquisition was carefully evaluated against alternative uses of
capital, including the repurchase of the Company's shares, with the
expected return and yield from the asset significantly higher than
the relevant hurdle rates.
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*
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The levy on revenues earned by
companies operating long-distance transport infrastructure in
France has now been enacted as part of the 2024 Finance Law. Once
the payment terms are published, it is expected that the law will
be challenged in the constitutional court, and it remains HICL's
expectation that compensation would be due through higher tolls.
However, even if the levy were to be imposed in full, the impact on
HICL's valuation of the A63 Motorway is not expected to be
material.
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*
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The Company's new modern economy
assets (Fortysouth, Texas Nevada Transmission ("TNT") and Altitude
Infra), are now well integrated into the portfolio and continue to
perform in line with expectations.
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Financial Performance
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The Company is on track to deliver
its target dividend of 8.25p per share for the financial year to 31
March 2024, with cash generation in the period in line with
expectations.
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*
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Proceeds from the announced
disposals of Bradford Schools PPPs, the four PPP assets sold to
John Laing and the University of Sheffield Accommodation Project
have been received. The proceeds from the Hornsea II OFTO and the
Northwest Parkway disposals expected by Q3 2024.
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*
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The Company announced in February
2024 the intention to allocate up to £50m of the NWP disposal
proceeds towards a share buyback programme in due course which will
run for a period of up to twelve months.
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Valuation
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The Company's NAV and valuation
approach continues to be well-informed by transaction data points,
including the Company's own disposal activity which now spans over
£500m of assets, across sectors and geographies, all realised at or
above their carrying values.
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*
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From September 2022 to September
2023, HICL increased its weighted average portfolio discount rate
by 140bps. Current long-term UK government bond yields imply that
HICL benefits from a c. 3.7% equity risk premium which has widened
by 30bps since the Company's results at 30 September 2023. The
Investment Manager believes the risk premium is appropriate for
HICL's core infrastructure portfolio.
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While noting increased market
confidence that interest rates have peaked across HICL's key
jurisdictions, the Investment Manager does not anticipate a change
in the portfolio weighted average discount rate in the 30 March
2024 Valuation as it currently aligns with transactional evidence
in the sector. The Company believes the
strong valuation achieved for its sale of NWP reflects the unique
opportunity for the bidder to acquire 100% of the equity as well as
the asset's strong inflation correlation, particularly over the
past two years.
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Alongside the expected NAV uplift of
c. 2p, the NWP sale is expected to be materially accretive to
portfolio yield, while modestly reducing the portfolio's weighted
average asset life to 29.5 years and inflation correlation
from 0.8x to
0.7x2.
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Inflation for the year to 31 March
2024 is currently slightly below the assumptions used in the 30
September 2023 valuation (at 4% relative to an assumption of 6.5%
for UK RPI). If it remains at these levels, the negative effect on
the portfolio's 31 March 2024 valuation is expected to be c.
1.5p.
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Market and Outlook
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The market for high quality core
infrastructure assets remains in good health with increasing
transaction volumes noted in the period3. This data,
supported by the Company's own disposals, continues to reaffirm
market liquidity and the observed disconnect between public market
and private investor valuations for inflation correlated core
infrastructure.
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The Board and Investment Manager
remain focused on responsible capital allocation, with disposal
activity used to support the selective review of investment
opportunities to enhance the portfolio's key financial metrics, in
line with HICL's long-term track record of accretive asset
rotation.
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1.
US$ proceeds translated to £184m using an exchange
rate of 1.26. The uplift versus the US$ valuation at 30 September
2023 is 34%
2.
Based on portfolio valuation as at 30 September
2023
3. 577
infrastructure deals completed globally in Q4 2023 vs 553 in Q3
2023, with 83 core infrastructure deals in Q4 2023 vs 62 in Q3
2023. Infrastructure deals source: Preqin data. Core infrastructure
deals source: Combination of Infralogic and InfraRed internally
reviewed deal universe
-Ends-
Enquiries
InfraRed Capital Partners
Limited
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+44 (0) 20 7484 1800 /
info@hicl.com
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Edward
Hunt
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Helen
Price
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Mohammed
Zaheer
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Brunswick
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+44 (0) 20 7404 5959
/ hicl@brunswickgroup.com
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Sofie
Brewis
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Investec Bank
plc
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+44(0) 20 7597 4952
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David
Yovichic
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RBC Capital
Markets
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+44 (0) 20 7653 4000
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Matthew
Coakes
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Elizabeth
Evans
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Aztec Financial Services
(UK) Limited
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+44(0) 203 818 0246
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Chris
Copperwaite
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Sarah
Felmingham
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HICL Infrastructure PLC
HICL Infrastructure PLC ("HICL") is
a long-term investor in infrastructure assets which are
predominantly operational and yielding steady returns. It was the
first infrastructure investment company to be listed on the London
Stock Exchange.
With a current portfolio of over 100
infrastructure investments, HICL is seeking further suitable
opportunities in core infrastructure, which are inherently
positioned at the lower end of the risk spectrum.
Further details can be found on the
HICL website www.hicl.com.
Investment Manager (InfraRed Capital
Partners)
The Investment Manager to HICL is
InfraRed Capital Partners Limited ("InfraRed") which has
successfully invested in infrastructure projects since 1997.
InfraRed is a leading international investment manager, operating
worldwide from offices in London, New York, Seoul, Madrid and
Sydney and managing equity capital in multiple private and listed
funds, primarily for institutional investors across the globe.
InfraRed is authorised and regulated by the Financial Conduct
Authority.
The infrastructure investment team
at InfraRed consists of over 100 investment professionals, all with
an infrastructure investment background and a broad range of
relevant skills, including private equity, structured finance,
construction, renewable energy and facilities
management.
InfraRed implements best-in-class
practices to underpin asset management and investment decisions,
promotes ethical behaviour and has established community engagement
initiatives to support good causes in the wider community. InfraRed
is a signatory of the Principles of Responsible
Investment.
Further details can be found on
InfraRed's website www.ircp.com.