Wednesday, 23 May 2018

HICL Infrastructure - Full Year Results

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."

Sum Up

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!


  1. You're right to be alert to the political risks but I suspect the accounting policy risk is a greater concern. It's bit of a genearlisation but this sector is bedevilled by over aggressive accounting - mostly bringing income forward - and one shouldn't be suprised if Carillion is the only casualty. It's difficult for a fund manager to know exactly what is going on under the bonnett, however diligent they may be, and I would suggest the shares deserve to trade at a discount.

    1. I think you are right to highlight this area Ruby. It seems that poor management and aggressive accounting practices were at the heart of the demise of Carillion and I imagine it will be an issue with many of the firms in this sector.

      Hopefully the failure of Carillion will be a spur to those who are responsible for the oversight of these firms to tighten up on regulation to try to minimise a repeat and improve corporate governance but when big contracts are up for grabs there must be a temptation to do whatever it takes to come out on top.

      As you say, the fund managers cannot know what is going on as these issues are often covered up however I suspect the good managers will minimise the risks to their portfolio by diversifying and hopefully HICL will have learned a lesson from having too many eggs in the Carillion basket.

    2. I would add that the NAV of these trusts (or rather the underlying investments) can be a little illusory. After all, the value of a half built bridge or tunnel is essentially an accounting construct and yet forms part of NAV. It assumes the project will be completed but if it isn't, because the company goes down, one is left with, well, a half built bridge or tunnel. Another reason I think for suggesting a discount to NAV is deserved for HICL and similar trusts.

  2. Hi DIY
    I made my first investment in HICL in March when there was a large discount. Yes, it was risky given the Carillion disaster and the prospect of a Corbyn government but if not this, then something else will happen - who knows? It's something different in my portfolio. I'll probably make another top up and then just leave it to run for a while, ignore the share price, count the dividends and ride any political waves which will inevitably come.

    1. Your timing has been much better than mine on this one weenie...well done on getting on board at the right time.

      I think you are correct to ignore all the 'noises off', collect the dividends and see how things turn out. As we have seen with Tesco recently, Dave Lewis and his team have turned things around over the past couple of years and the dividend has now been restored. A large set back usually finds ways to self-correct over time.