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GCP Infrastructure battles on in tougher environment

GCP Infrastructure battles on in tougher environment

GCP Infrastructure Investment has managed to deliver a positive return in the increasingly tough environment for the fund.

The trust’s annual report showed a total return of 9.5% in the 12 months to 30 September, while profits jumped by around 58% year-on-year to £48.7 million.

Although government spending on infrastructure developments remains healthy, chair Ian Reeves outlined the difficulties posed in trying to access new investment opportunities.

‘High‑quality infrastructure is still regarded as a key foundation for supporting economic growth,’ he said.

‘However, procurement of social infrastructure under the successor to the Private Finance Initiative, Private Finance 2, has been more limited than expected.

‘Consistent clarity regarding the scale and details of future UK infrastructure development remains elusive.’

Reeves highlighted the government’s intention to switch its focus from onshore to offshore renewable energy as throwing up an investment hurdle.

‘The government has been quick to make a number of key renewable energy policy decisions that will significantly curtail the number of new projects developed over the next year or so, particularly in the onshore wind, solar and biomass sectors.

‘Under Electricity Market Reform the government's support for the renewable energy sector will now shift towards the contracts for difference (CfD) model. Moving forward, it is expected that investment in renewable energy will be heavily channelled towards the offshore wind sector.’

As such, Reeves conceded that the investment environment has become somewhat oppressive for the trust.

‘The last year has seen returns in some of the company’s core sectors continue to fall from levels already below the target interest rates of the company, resulting in a challenging investment environment,’ he expanded.

‘Declining yields on mature operational assets have seen the company largely priced out of the secondary market in the traditional renewables and PFI sectors, and the withdrawal of government support for new renewables investment, by way of large subsidy reductions, has rendered the company an uneconomical source of funding for many primary developers in this space.’

A year which saw the board raise £140 million of additional investment through new share issuance ended with the trust trading at 12.8% premium to net asset value of 107.47p per share, versus an ordinary share price of 121.5p.

While NAV had since dropped to 120.4p as at market-close on 17 December, it represents the fifth-consecutive year of the trust trading at a premium.

This allowed the board to continue paying shareholders a dividend of 7.6p per ordinary share for the third straight year, with payments having been on a steady upwards or sideways trajectory since GCP Infrastructure launched in July 2010.

On 30 November the trust’s historic dividend yield stood at 6.31%, while market cap totalled £694.1 million. In the year to that date it returned 6.48% alongside a NAV total return of 16.34%, compared to a 2.51% sector average.

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