BBGI, which provides exposure to a global portfolio of 49 availability-based PPP infrastructure assets, has reported interim results to 30 June 2020. Over the period, the company’s investment basis NAV per share increased by 0.1%. The 2020 target dividend of 7.18pps represents a 2.6% increase compared to last year.
Portfolio highlights include 99.8% asset availability
As at 30 June, the geographical split was as follows:
| Canada | 36% |
| UK | 30% |
| Australia | 13% |
| Cont. Europe | 11% |
| USA | 10% |
- Highlights from the period include:
- Resilient portfolio performance during the reporting period despite the wider market and economic uncertainty
- Consistently high level of asset availability at 99.8 per cent underpinned by active asset management
- No material adverse operational or financial impact related to the Covid-19 pandemic with cash receipts ahead of business plan.
- A combined £17.9m was invested to finance three new and follow-on acquisitions, including: the company’s equity interest in Highway 104, Canada; the acquisition of an additional stake in N18 Motorway, Netherlands and to acquire the remaining 75 per cent equity interest in Stanton Territorial Hospital, Canada.
- Attractive global pipeline of availability-based assets in highly-rated investment grade countries including a pipeline agreement with a North American contractor which provides additional investment opportunities in availability-based PPP assets
Trends and pipeline update from the manager
“At the point of publication of this interim report, the company and its portfolio has not experienced any material adverse operational or financial impact related to the implications of Covid-19. The focus on value preservation will continue as the pandemic evolves.
In doing so, the pandemic has presented opportunities to develop and evolve our active asset management approach. In close collaboration with our FM and O&M contractors, we have supported our clients – and by association their end-users – to ensure the facilities which they operate are performing their optimal social and economic purpose for local communities.
Managing the company’s portfolio effectively will be complemented by selective investment activities in assets which meet our strict investment criteria. The pipeline for new investments remains strong and combines both attractive primary and secondary opportunities.”
New primary opportunities
“The level of PPP procurement is expected to vary between markets. Some projects have been cancelled or delayed due to Covid-19, while other projects are being accelerated as governments look for ‘shovel ready’ initiatives to stimulate economic productivity. The longer lead times to reach financial close on new investments will likely continue, as the Company experienced in the successful acquisition of a stake in the Highway 104 project in May 2020.
Some governments are seeing the current situation as a valuable chance to improve infrastructure and expand economic opportunity. Lower interest rates make borrowing cheaper compared to recent years, reducing the upfront costs of generational projects. Infrastructure spending can also create immediate professional opportunities across a mix of design, construction, and operational jobs. The mix of short-term employment and long-term investment makes infrastructure an attractive area for countercyclical fiscal stimulus. We expect this to be the theme in many of the markets where we are active including Canada, US, UK and Europe.
Canada: The Investing in Canada Infrastructure Program is being adjusted so that provinces and territories can use federal funding to act quickly on a wider range of more pandemic-resilient infrastructure projects. Under a new Covid-19 Resilience funding stream worth up to $3.3 billion, projects will be eligible for a significantly larger federal cost-share and a simplified funding application process will ensure that projects can get underway as soon as possible. These changes are designed as short-term measures to address the current situation while the Federal Government works towards its long-term infrastructure objectives, including better public transit, more high-speed broadband, wastewater infrastructure and clean energy projects.
UK: In the UK, the Chancellor’s ‘Plan for Jobs’ issued in July 2020 set out the UK Government’s policy response to help the economy recover from the Covid-19 lockdown, following the infrastructure investment plans announced by the Prime Minister the previous week. The £30 billion fiscal package includes £5.6 billion of infrastructure spending which has been brought forward from future years’ budgets.
US: In the US, there are expectations of support for increased infrastructure spending. There is little doubt about the political and economic value of investing in good infrastructure. The non-partisan Congressional Budget Office estimated that every $1 on infrastructure brought an economic benefit of up to $2.20. The US Council of Economic Advisers has calculated that $1 billion of transportation-infrastructure investment supports 13,000 jobs for a year.[xiii] We are expecting that infrastructure spending will be a key foundation for economic recovery going forward, irrespective of which party is elected in November 2020.
EU: In July 2020, the European Union’s executive arm announced a €750 billion stimulus plan which includes funds earmarked for sectors of strategic importance such as critical infrastructure and healthcare.
While the prospects are promising for increased infrastructure spending in many markets, this is not a universal theme.
Australia: Some governments are cutting infrastructure projects due to expectations of reduced sales and income taxes. As an example, the State of Victoria in Australia recently cancelled the A$2.2 billion arterial roads PPP. The Australian Government has said it favoured a more ‘streamlined’ procurement process which breaks up the work into 12 contracts with smaller, local construction companies, which it believes would be a better way to add more jobs during the Covid-19 related economic downturn.
The Company has significant investment expertise in key developed infrastructure markets internationally, and its global portfolio provides a platform to access opportunities and to support the Company’s selective growth strategy. The Management Board continues to believe that geographic diversification is in the best interests of the Company’s long-term growth and as a result BBGI is not dependent on the activity level of any one market.”
Ongoing secondary opportunities
“Historically, construction companies have been a good source of investment opportunities for BBGI. Amid the tough operating environment triggered by the Covid-19 pandemic, and the general slowdown in construction activity in many markets, the Management Board anticipates that many construction companies may accelerate their plans to sell PPP assets. BBGI was able to acquire interests in the Stanton Territorial Hospital project from two construction companies who were partners in the project. We anticipate this trend to continue.
The Company has well-established relationships with potential vendors and an exceptional reputation for transacting quickly with extremely low execution risk, which is appealing to vendors in the current market. These factors support the Company’s selective acquisition strategy and the Management Board continues to believe that attractive opportunities will be available for the Company to grow on favourable terms. The Company is currently working on a number of attractive secondary opportunities.”
2020 and beyond:
“Investment activities in 2020 and beyond will involve sourcing and originating, bidding for and winning new operational availability-based assets, with consideration for measured exposure to construction assets to support valuation uplift.
The pipeline for availability-based transactions remains strong within the Company’s target markets. The Company will maintain its selective acquisition strategy in assessing any potential new assets and we remain confident in our ability to originate attractive investment opportunities which match our investment criteria. We anticipate these will come from a variety of sources, including:
- Soliciting off-market transactions through the Company’s extensive network of market participants in Europe, North America and Australia;
- A pipeline agreement with SNC-Lavalin covering five potential future availability-based PPP investment opportunities;
- Participating in primary investment opportunities and bidding on new availability-based assets as part of public sector procurement processes including OFTOs;
- Acquiring equity interests from co-shareholders in existing assets; and
- Participating selectively in competitive sale processes.
- The Company will continue to source assets that fit the requirements of its low-risk and globally diversified investment strategy.
- Pipeline agreement assets: (All assets have availability-based revenue streams)”
BBGI: BBGI operated at 99.8% asset availability over interim period