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3i Infrastructure update – portfolio holding up well but lower power prices to affect valuations

3i Infrastructure 3I

In an update covering the period from 1 April to 29 September 2020, 3i Infrastructure (3IN) said that “most portfolio companies have met or exceeded the expectations we set at the start of the period, although lower power price forecasts, ongoing effects of the pandemic and the slow recovery in air travel will affect some portfolio company valuations at the half year-end.”

Period highlights from 3IN

  • Follow-on investments:
    • Tampnet agreed to purchase a 1,200km offshore fibre cable system in the Gulf of Mexico from BP
    • 3IN committed additional capital to ESVAGT to fund further growth in its offshore wind servicing segment
  • Good portfolio income in the period:
    • Total portfolio income and non-income cash was slightly ahead of expectations at £47m in the period. This compares with £57m of income and non-income cash received in the same period last year.
  • FY21 dividend target:
    • 3IN is on track to deliver its dividend target for the year ending 31 March 2021 of 9.80 pence per share, a year-on-year increase of 6.5%.
  • Strong available liquidity:
    • 3IN’s cash balance was £361m at 29 September 2020 with the full revolving credit facility of £300m available.

Portfolio update from the manager

“The portfolio overall performed well during the period. We remain cautious about the speed of the recovery in economic activity and conscious of further COVID-19 related risks, but we have a portfolio that is continuing to prove resilient.  We note the prolonged effects of the pandemic on the air travel sector, which will have an effect on TCR; and the reduction in power price expectations which will affect the value of Attero and Infinis, despite strong operational performance by both companies in the period.

Joulz exceeded expectations in the period, with no noticeable impact from COVID-19.  Both Valorem and Ionisos also performed strongly.  Valorem’s operating portfolio benefitted from favourable wind conditions, good availability, and a partial refinancing, while a number of new projects became operational. Ionisos has benefitted from cold sterilisation being an essential service to the healthcare and pharma industries.

Tampnet, the world’s leading operator of offshore fibre communications networks, agreed to purchase a 1,200km offshore fibre cable system in the Gulf of Mexico from BP Exploration & Production Inc. The transaction is expected to be funded from Tampnet’s own resources and existing credit facilities. It gives Tampnet ownership of a key piece of subsea infrastructure in the region, enabling Tampnet to replicate its successful North Sea business model in the Gulf of Mexico.  Tampnet’s performance during the Period has been affected by the low oil price delaying some expected growth, and by the pandemic reducing some offshore personnel-related activities.

ESVAGT has seen no noticeable impact from COVID-19 on the wind sector or on the operational performance of the business.  As expected, the relatively low oil price has led to reduced demand in the emergency rescue and response segment.  The company committed to invest further capital into ESVAGT to fund continuing growth in its offshore wind servicing segment, with three new vessels due to commence operations in the next year.  £15m, out of a commitment of £27m, was invested in September.

TCR performed slightly ahead of our expectations during the period, supporting its clients through the crisis in the aviation sector and seeing increasing interest in its full-service rental business model from a broad range of existing and potential new customers.  However, we now expect a more prolonged period of gradual recovery to previous air traffic levels. This will be factored into the half-year valuation of TCR.

Oystercatcher performed in line with expectations. The oil products market continues to be in contango despite the oil price increases since May as European countries started to ease government restrictions, but we have seen reduced throughput activity across the Period as a whole.

The portfolio is delivering a good level of income. Total portfolio income and non-income cash was £47m in the period, comprising portfolio income of £45m and non-income cash of £2m. This compares with £51m of income and £6m of non-income cash received in the same period last year.

As usual, an important element of the determination of the company’s results for the half-year to 30 September 2020 will be the valuation exercise carried out on the investment portfolio at that date.”

3IN: 3i Infrastructure update – portfolio holding up well but lower power prices to affect valuations

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