Ecofin Global Utilities and Infrastructure (EGL) is to lift dividends by 5.9% after a morale-boosting second half recovery helped pushed its annual return to 15%.
The £223m investment trust’s growth in net asset value (NAV) in the year to 30 September compared well to its two main performance benchmarks. It was just behind the 15.4% gain in the S&P Global Infrastructure index and beat the 11.7% rise in the MSCI World Utilities index.
The infrastructure securities fund lagged the broader MSCI World index’s 16.8% advance but that reflected its focus on more defensive stock sectors and an absence of the big technology companies that have led markets higher since April lows when fears over US tariffs were at their highest.
While it doesn’t hold tech stocks, Redwheel fund manager Jean-Hugues de Lamaze said the portfolio was a play on artificial intelligence (AI) as it had benefited from the rapid growing power demands of the world’s biggest internet platforms.
De Lamaze said the second half of the financial year saw a “flurry” of independent power producers and hyperscaler deal announcements, which he said were “crucial price markers” for portfolio companies such as Constellation Energy, its biggest position at 4.2%, Vistra and potentially for all baseload power generators that account for just over 14% of the trust’s assets.
“In June, Constellation signed a contract for one of its nuclear units with Meta, while Talen (not held) signed another nuclear power price agreement with Amazon. Both deals reflected favourable terms for the IPPs: they represented an estimated 30% premium to energy market prices and had 15+ year deal terms,” he said.
That was followed in July by portfolio holding Brookfield Renewable Partners signing a hydro framework agreement with Google to deliver up to 3GW of carbon-free capacity across the United States, the world’s largest corporate power deal for hydroelectricity.
In September, Vistra announced a 20-year power price agreement for 1.2GW of its Comanche Peak nuclear plant which is expected to start in two years and ramp up to 2032. Vistra expects this to boost its free cashflows by 8‑10%.
“These deals are critical to lock in long-term, creditworthy demand from the fastest-growing power consumers in the world, at premium prices. This turns energy into a stable, scalable business, while reducing exposure to short-term fluctuations in commodity prices,” de Lamaze said.
A reallocation of funds from the US to Europe in the first half paid off and there were also strong returns from transportation companies and from Asia Pacific as well, with gearing, or borrowing, of around 10% adding to the performance.
Shareholders made a 16.6% total return as the shares saw their gap, or discount, to the trust’s net asset value narrow slightly to 11% in response to the company buying back its cheap stock.
Outgoing chair David Simpson, who will be replaced by Susannah Nicklin in March, said in the nine years since launch, EGL had delivered annualised growth of 10.7% that underpinned a 12.3% average annual return to shareholders. These again beat the S&P Global Infrastructure and MSCI World Utilities indices which both returned 7.8% a year annualised.
As an expression of confidence in long-term growth prospects, EGL’s board has decided to increase the quarterly dividend by 5.9% to 2.25p per share from February to give a total of 9p in the current financial year that puts it on yield of 4.1%. The inflation-busting rise means the trust’s payments have grown faster than the consumer prices index since launch in 2016.
Our view
James Carthew, head of investment company research at QuotedData, said: “I remain a happy holder of EGL shares, the NAV hit a new all-time high in October and the share price has been playing catch up with that. Rising power prices, driven in part by demand for power to fuel AI, are changing the game for utilities and, if for whatever reason that story fades, there is always the massive need to replace/refurbish crumbling infrastructure. I think this story has a long way to run yet.”
