Shares in investment trust HICL Infrastructure (HICL) fell 1.2% to 162p as it cut its dividend target, with income more than halving as coronavirus disrupts activity.
In results for the year to 31 March, pre-tax profit fell to £50m from £285m the previous year as income slumped to £86.7m, down from £324.1m the year before and earnings per share falling to 2.7p from 15.9p.
Carillion writeback and changes in economic assumptions in the previous year that were not replicated in the current year, combined with an adverse impact from coronavirus and regulatory headwinds, resulted in lower income, pre-tax profit and earnings per share, HICL said.
Despite a fall in net asset value (NAV) per share of 3.3% to 152.3p, total return was positive, up 1.9% reflecting underlying strength of the diversified portfolio . The company declared a fourth quarter interim dividend of 2.07p, up from 2p last year.
In light of the impact from coronavirus, the dividend target guidance was revised down for next year to 8.25p per share, down from its previous target of 8.45p a share.
FALLING DEMAND HITS HICL
HICL’s demand-led assets, which make up around 20% of the portfolio, appeared to be hit the hardest from the current coronavirus crisis.
These assets mostly comprise two toll roads in France and the US, and High Speed 1 in the UK, with their value written down by 12% due to falling cash flows and an increase in the discount rate.
Revenue on its A63 motorway asset in France has fallen around 50-60%, while revenue levels from the Northwest Parkway in Denver, Colorado have plunged 75%.
The majority of HICL's revenue from HS1 comes from Southeastern and Eurostar, with additional revenue from retail and parking charges. Revenues from the latter have dropped 85%.
HICL’s projections assume it will take around two and a half years on average for traffic volumes to get back to pre-coronavirus levels.
PORTFOLIO PROVIDES ‘HIGH DEGREE OF COMFORT’
Despite the hit to its demand-based assets, analysts at Liberum think HICL is still well-placed in the current crisis, with around 80% of its revenues unaffected thanks to the majority of its portfolio being in PFI assets, with their government-backed cash flows providing a ‘high degree of comfort in a recessionary environment.’
While analysts at Numis called the NAV declines ‘disappointing’, they believe the approach to valuation has been ‘relatively prudent’ and that HICL’s assets remain attractively valued compared with the wider real asset sector and long-term bond yields.
They add that the ‘quality of the income across the portfolio’, notwithstanding the short term pressures for demand based assets, has enabled HICL’s board to maintain the current dividend rate at the ‘attractive’ yield of 5%, with scope to increase dividend growth if conditions return to normal more quickly than the manager assumes.
