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3i Infrastructure looks to build on strong results

Over its half-year results period to 30 September 2020, 3i Infrastructure (3IN) generated a total return of 3.8%. 3IN says that the portfolio is performing in line with expectations, both financially and operationally.

3IN delivered a total shareholder return of 18.9% in the period (the company notes that the FTSE 250 index returned 16.0% over the same period). 3IN typically trades with low correlation to the broader market. 

‘3IN has proved resilient to the challenges of the pandemic’

3IN’s portfolio breakdown by value and country is shown below:

Portfolio – breakdown by value
at 30 September 2020

Portfolio – breakdown by country
at 30 September 2020

Infinis

16%

Netherlands

21%

Tampnet

13%

France

19%

Joulz

12%

UK

16%

Ionisos

12%

Norway

13%

TCR

11%

Belgium

11%

ESVAGT

9%

Luxembourg

9%

Oystercatcher

9%

Denmark

9%

Valorem

6%

India

2%

Attero

6%

Projects

4%

India Fund

2%

Phil White, managing partner and head of infrastructure at 3IN’s manager, noted the following: The company is in a strong position with ample liquidity. We have built a well-diversified portfolio providing essential infrastructure services that has proved resilient to the challenges of the COVID-19 pandemic. However, we remain cautious about the speed of the recovery in our markets and conscious of further COVID-19 related risks, particularly in relation to TCR which is the business most directly affected.

Joulz performed ahead of our investment case for the year to date. The carve-out from Stedin is progressing well and the company is integrating the new electric vehicle charging solutions business it acquired in March. We completed a successful refinancing on better terms than envisaged in our previous valuation. We have strengthened the management team with the appointment of Joulz’s first CFO, Paul Smits, who was previously the CFO for the Port of Rotterdam.

Ionisos performed well during the first year under our ownership and has benefited from cold sterilisation being an essential service to the healthcare and pharma industries. The COVID-19 pandemic resulted in reduced demand for surgical, cosmetic and veterinary products but this was largely compensated by an increase in demand for medical PPE and packaging. During the period, Ionisos began construction of a new E-beam facility in Bautzen, Germany. We have added a new CFO to the management team, Mohamed El Bounaamani, with the previous CFO transitioning to the role of General Manager, France.

Tampnet’s success in signing an agreement to acquire BP’s fibre assets in the Gulf of Mexico represents an important milestone for our investment, securing ownership of a key piece of subsea infrastructure and enabling Tampnet to replicate its North Sea business model in the Gulf of Mexico. The transaction is subject to certain third party and regulatory consents and approvals and is expected to be funded from Tampnet’s internal resources and existing credit facilities. During the period, performance in Tampnet’s roaming business was affected by the pandemic as operators reduced some personnel-related activities, and across the business we saw certain growth projects delayed. We were pleased with the appointment of Ulf Bonnevier as the new CFO. Ulf brings significant large corporate experience from his previous role as CFO at Humana Group.

TCR has performed broadly in line with our expectations during the first half of the year, as flights resumed slightly earlier than we had anticipated and operating costs were managed well. However, travel restrictions and the ongoing effects of the pandemic on demand for air travel are now expected to endure for longer than we had previously assumed, with a more prolonged period of gradual recovery to previous air traffic levels by 2024 and consequential impacts on TCR’s customers. This has led to a reduction in our valuation of TCR at the period end.

Attero continues to perform well operationally. Waste production in the Netherlands had largely recovered by the end of the period. However, waste imports from the UK are still materially below pre-pandemic levels. Attero’s EfW plants were nevertheless able to continue operating at full capacity during the period by drawing waste from Attero’s buffer. The significant reduction in power prices was partly mitigated by the company’s hedging programme but our valuation at the period end reflects both lower current power prices and lower medium to long-term forecasts.

Oystercatcher’s terminals enjoyed a good first half of the year, outperforming expectations and prior year, on the back of more favourable market conditions for oil storage and lower costs. The negative impact of COVID-19 has been limited to lower throughput levels as a result of lower end-user demand and refineries continuing to operate below their normal output levels.

Infinis performed ahead of expectations in the period, primarily due to outperformance in its captured landfill methane business. As a result of its progressive near-term hedging strategy, Infinis has suffered limited financial impact from low power prices but medium to long-term forecasts have been revised down.

The impact of the COVID-19 pandemic and the significant fall in the oil price has not affected ESVAGT’s Service Operation Vessels (‘SOVs’) fleet which services the offshore wind market, but has impacted its ERRV fleet which operates in the oil and gas segment, where we are seeing lower utilisation levels. Overall performance improved compared to the same period last year. During the period we committed further funding to support ESVAGT’s continued growth in the wind sector, with three new SOVs due to commence operations in the coming year.

Valorem performed well in the first half of the year, benefiting from favourable wind conditions, good availability and a partial refinancing. All assets continued to operate as normal during the lockdown period and a number of new projects became operational, while some construction projects suffered only limited delays, mainly due to supply chain issues. The management team has been strengthened with the appointment of a new CFO, Tristan Maes.

The availability-based projects portfolio has performed in line with expectations. We were pleased with the significant progress made towards realising the remaining assets in the India Fund, with an agreement to sell the Fund’s stake in Krishnapatnam Port. The valuation of the company’s investment in the Fund reflects the terms of the sale agreement.”

‘Transaction activity in the infrastructure sector has been reasonable with continued investor appetite’

With respect to 3IN’s outlook, Phil said: “The uncertainty created by the COVID-19 pandemic continues to create a degree of volatility in the financial markets, but we have seen a reasonable level of transaction activity in the infrastructure sector demonstrating continued investor appetite for the resilience inherent in many infrastructure businesses.  Competition for new investments is still high, but we remain patient around the deployment of our available liquidity, seeking those opportunities that enhance the portfolio. The pipeline includes further investments in existing sectors, particularly to support energy transition and communications infrastructure.”

3IN: 3i Infrastructure looks to build on strong results

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