3i Infrastructure (3IN) has reported record annual returns after making two big disposals but has said it is unlikely to repeat the performance soon after rebalancing its portfolio.
Final results from the £1.8 billion infrastructure company last week showed it generated a total return of 26.8% on net assets for the year to 31 March, the highest 12-month total return in its history and far ahead of its 8-10% medium-term target for annual returns.
The trust paid dividends of 7.85p per share and increased the target for its semi-annual payments for 2018/2019 by 10% to 8.65p per share. The shares yield 3.9% and trade at a premium of 5.4% above net asset value (NAV).
The impressive returns were on the back of the disposal of Anglian Water Group (AWG), on which 3IN made £399 million or 3.3 times its original investment; and the sale of Finnish power grid company Elenia, which achieved proceeds of £738 million, a multiple of 4.5 times its original investment.
The profits have been reinvested to diversify the portfolio, said manager Phil White with £190 million to increase its stake in WIG, a communications infrastructure company, to 93%. Another £136 million was invested into renewable energy generator Infinis to fund the acquisition of Alkane Energy, a company generating power from coal mine methane gas.
3IN acquired 50% of Netherlands-based waste processing business Attero for £176 million, and another £23 million was invested into sea safety business ESVAGT and Oystercatcher, subsidiary through which the fund invests in oil storage.
White said the investments mean the portfolio was ‘much better balanced’ in terms of investment size, with greater exposure to a range of countries, sectors, and risk factors. Although the portfolio has lessened some risks, there are new ones on the horizon.
‘While exposure to regulatory outcomes has been reduced, there is now increased potential volatility from market factors, including commodity prices and GDP growth,’ said White.
‘Overall, we believe that the portfolio is well-positioned to meet the company’s return and dividend targets over the medium-term.’
Infrastructure investments are still big business and there is increased competition in the UK and Europe, as demonstrated by the prices the trust received for AWG and Elenia.
White said he saw this competition ‘persisting in the medium term’ and he was focusing on areas that offer ‘more risk-adjusted returns, in mid-market economic infrastructure businesses and greenfield projects’.
However, there was a good chance the company could branch out into North America. ‘As our new team in North America invests, we will work with the board to evaluate the suitability for the company of broadening its geographic focus to include that market,’ said White.