RM Infrastructure Income (RMII) announced its annual results for the year-end December 2022. Including dividends, the company achieved NAV growth of 5%, while shares grew 3.7%, following on from its impressive performance through 2021 which saw NAV and share price growth of 7.6% and 16,7% respectively.
While there is no mention of a benchmark in the company’s reports, returns were clearly ahead of traditional loan and bond returns for the year thanks to the company’s focus on relatively short-dated lending. Despite the positive two-year performance, shares continue to trade at a discount of around 15%.
Commenting on the market environment, the investment manager noted that:
“In the 2021 annual report outlook we noted “as we look into 2022 it is likely that there will be further upwards pressure on government bond yields as inflationary pressures remain and central banks move into a tightening phase… negative outlook for general fixed income markets… credit spreads will likely move wider over the coming year.” All of this played out over the course of 2022 which was indeed a very difficult environment for credit, rates, and equities. The RMII portfolio was appropriately positioned with short duration exposure that minimised these wider credit spreads and higher underlying government bond yields.
“The ITRX Markit Crossover index widened from circa 250 to nearly 700 post the mini budget in September and ended the year materially wider than where it started at circa 450. 2-year UK government bond yields started the year comfortably under 1% and peaked at over 4.5% in late September and closed out the year at over 3.5%. The RMII portfolio did not suffer the volatility seen within these markets, however general fair value mark downs were taken during the year to reflect the widening in credit spreads and the increase in government bond yields.”
Regarding the outlook, chair Norman Crighton continued:
“Due to the increase in credit spreads and higher government bond yields the Investment Manager is making new loans at higher levels increasing the average portfolio yield. The portfolio average yield rose by 67bps over 2022 and this is set to rise further over 2023 thus generating additional net interest income. We therefore expect this to increase the level of dividend cover allowing for higher distributions absent of an increase in credit losses.
“We are therefore seeking to target distribution for 2023 to be at least 7 pence per Ordinary Share which is a 7.7% increase in income for Shareholders over the distributions received in 2022. Using the share price at the time of writing of 84 pence per share this would equate to a dividend yield more than 8.33% and represents an increase of 68bps over the dividend yield of 7.65% based on the closing share price as at 31 December 2022.”
RMII : Solid performance in tough year for RM Infrastructure Income