Ecofin is growing again – Ecofin Global Utilities and Infrastructure Trust (EGL) announced on 29 April that it had issued 750,000 shares at 158.2p and yesterday it issued 600,000 shares at 152.5p. Both share issues were done at a price higher than the net asset value, enhancing the underlying value of the shares owned by existing shareholders. The trust now has 93,222,247 shares in issue.
EGL seeks to provide a high, secure dividend yield and to realise long-term growth, while taking care to preserve shareholders’ capital. It invests principally in the equity of utility and infrastructure companies which are listed on recognised stock exchanges in Europe, North America and other developed OECD countries. It targets a dividend yield of at least 4% a year on its net assets, paid quarterly and can use gearing and distributable reserves to achieve this.
The trust was established in September 2016 as one of two rollover vehicles for Ecofin Water and Power Opportunities. We started covering it in detail in May 2017, when the trust was trading at a 12.9% discount. We knew that the trust’s attractive dividend yield ought to be attracting investors and we felt that the trust deserved to grow.
Market fashions changed over the next couple of years but EGL’s investment adviser, Jean-Hugues de Lamaze used periods of weakness in the utilities and infrastructure market to pick up stakes in companies he liked and this helped drive the trust’s outperformance of comparable indices. By the end of September 2019, when we published our last note on the company “compelling three-year track record“, investors were starting to agree with us that the trust deserved attention. The discount was finally narrowing.
This year, we have been hit by the COVID-19 pandemic. Stock markets have tumbled. EGL has not been immune to this, but it has held up reasonably well. Interest rates have been slashed and many companies are cutting or suspending their dividends. The sectors that EGL focuses on are relatively unscathed, however. Yes power prices are weak, but power plants and other critical infrastructure are still operational and generating cash. EGL’s dividend should be secure in this environment (and the board always has the option of topping it up from reserves, if necessary).
The investment adviser says that the trust can be many times its current size without that impacting on returns. We hope that this is just the start of EGL’s expansion.