This large infrastructure trust was added to my ISA portfolio in December 2016. HICL is the largest trust in the infrastructure sector with current assets approaching £2.8bn.
HICL raises money from investors and then buys up infrastructure assets such as hospitals, schools and police stations around the world. The majority of the portfolio is focused in the UK and HICL receives management fees for the maintenance of these buildings, and, in some cases, for providing extra services such as catering and cleaning.
Since purchase, the trust’s shares reacted badly to Labour’s talk of nationalisation at the their Conference last September, when John McDonnell, the shadow chancellor who says his aim is to overthrow capitalism, suggested that a future Labour government would bring existing private finance initiative contracts back under direct public-sector control. McDonnell has also vowed to nationalise rail, water, energy and Royal Mail, with compensation likely to be paid in government bonds. He subsequently said some PFI investors might not be receive full compensation.
The share price took a further hit following the collapse of Carillion, with which it had more links than other infrastructure trusts.
The share price has retreated from a high of 170p when it traded at a premium to underlying assets and now trades at a discount to net assets but offers a higher yield. The managers aim to raise annual dividends from 7.85p this year to 8.05p next year and 8.25p for the year to March 2020.
They have today announced results for the full year to end March 2018. Total net asset return for the period is 5.7% and the portfolio of assets has increased 16% from £2.4bn to £2.8bn.
The company have suffered a £60m hit from the collapse of Carillion and as a result profits are down to £122m compared to £177 last year.
Likewise, earnings per share are reduced to 6.9p (2017 12.4p) which does not cover full year dividend of 7.85p. The proposed increase for the coming year is 8.05p which gives a fwd yield of 5.5% based on the current share price.
|12m Share Price (click to enlarge)|
Commenting on the results, Chair Ian Russell said:
"The delivery of long-term, stable income from a diversified portfolio of infrastructure investments has been at the heart of HICL's investment proposition since its inception. As in previous years, the Company has focused on executing its business model and I am pleased to present a resilient set of results for the year.
However, the financial year to 31 March 2018 witnessed a combination of external factors that adversely impacted the wider sector, together with some challenges specifically within the HICL portfolio. As a consequence, the Company's share price fell materially in the second half of the year, and the Company's shares traded at a discount to Net Asset Value ("NAV") per share from January 2018 through the final quarter, rather than at a premium as the market has become accustomed.
From IPO in March 2006 to 31 March 2018, the Company has delivered a TR of 9.3% p.a. based on dividends paid and the growth in NAV per share. This compares favourably to the Company's long-term target of 7-8% per annum. Further guidance was given in the Company's February 2017 prospectus, being a target long-term return of 5.6% p.a. based on an issue price of 159p per share."
The share price is obviously sensitive to the threats of an incoming Corbyn government. I believe this is unlikely but it remains a possibility so until that cloud evaporates, I am not expecting the shares to recover much of the ground lost over the past few months. In the present climate I would not be looking to add to my current holding, however I will continue to hold and collect my income. Hopefully down the line the political threats will diminish and the share price rebound to a premium.
The shares are down 10% on my purchase price of 162p however the dividends have gone some way to mitigate losses...fingers crossed there will be no more surprises like Carillion over the coming year.
As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!