Premier Global Infrastructure suffers tough 2018; struggles against benchmark – In the year ended 31 December 2018, Premier Global Infrastructure reported a negative total return on assets of 11%. This was a stark underperformance compared to the FTSE global core infrastructure index, which returned a positive 2.7%. NAV per share dropped to 112.55p from 165.07 in 2017, representing a 32% decrease. The share price at year end was 102.0p, a 9.4% discount to NAV.
The reasoning for Premier Global Infrastructure’s struggles is partly due to its exposure to emerging markets, where assets fell heavily in 2018. Further, the company’s portfolio is underweight in comparison to the FTSE index benchmark’s exposure to the US, in which safe haven US assets performed relatively well. The main regional weakness for the trust, however, was in China, representing 21% of the portfolio by year end. There were some trade disputes and issues that arose in 2018 between the US and China, making Premier Global Infrastructure’s exposure to China less profitable. A rights issue in the company’s largest Chinese investment, China Everbright International had a negative effect as well. The strong US dollar throughout 2018 also played a role as the Fed increased base interest rates. The trust’s highly geared structure amplified the falls. The asset cover of the company’s ZDPs was 1.49x at the end of December.
Cia de Saneamento do Paraná (“Sanepar”) remains the company’s largest holding. The shares were weak in the first nine months of the year due to the pressure on emerging markets, and the uncertainty of the Brazilian presidential election in October. However following the victory of the pro-market candidate, Jair Bolsonaro, the shares rallied strongly in November and December to finish the year with a small gain and the shares have risen further since.
Gillian Nott, chairman of Premier Global Infrastructure, offered some comments regarding the company’s performance in 2018. “2018 was a very disappointing year from the point of view of share price performance, with macro conditions hitting investor sentiment, particularly with regard to investment in emerging markets. This was caused by several factors, firstly a tightening of liquidity from US interest rate rises and the reversal of quantitative easing. Emerging markets, particularly those with large US dollar liabilities, were left exposed. In addition, US investors were incentivised by higher domestic rates to repatriate investment to the US, reducing demand for riskier emerging equities… Despite the weak markets, the underlying earnings growth of the portfolio’s investments continued to be very encouraging, and ironically often strongest in those companies whose share prices performed worst.”
PGIT : Premier Global Infrastructure suffers tough 2018; struggles against benchmark