Annual results from GCP Infrastructure (GCP) have disappointed shareholders waiting for a big disposal that could fund a significant return of capital and reward them for holding on to stock standing 30% below net asset value (NAV).
The £590m investment company, however, did say that its investment adviser Gravis Capital was “actively progressing transactions” that could fulfil the objectives set out in its capital allocation policy two years ago.
These targets were: a material reduction in debt, an improvement in the risk‑adjusted return of the portfolio, and to return at least £50m to shareholders, while maintaining the dividend target.
It also promised to engage with shareholders about the future strategy for recycling capital from investments once the current plan was completed.
So, jam is coming tomorrow. In the meantime, the annual report showed the £856m portfolio of 47 investments in projects encompassing supported living, healthcare, education, waste, housing and energy efficiency has made progress even if the pace is slower than hoped.
Under Gravis chief executive Philip Kent, leverage fell by £37m in the year to 30 September as the company sold £46.4m of renewable assets and returned £22.8m in share buybacks.
Over the two years of rebalancing and reducing equity exposure, disposals have brought in £80m and borrowing has been slashed from £104m to £20m with £35.6m of share buybacks.
Capital has been broadly preserved. Although NAV per share fell from 105.2p to 101.4p in the latest 12-month period, with 7p of dividends included the total underlying return from the portfolio was 3.1%, up from 2.2% in the previous financial year. The dividends were covered 0.81 times by cash, an improvement from 0.76 times, according to analysts at Stifel.
Chair Andrew Didham said notwithstanding the company’s long‑term track record with an 185% total portfolio return over 15 years, the last twelve months had been one of “frustration” as interest rates had not come down as fast as expected and therefore not provided the catalyst for a re-rating of long-dated income investments such as infrastructure funds.
He highlighted future political risks with the Reform party promising to scrap CfD incentives for renewable energy and the Conservatives pledging to axe climate change targets if elected, both of which Didham said would be a mistake.
Nevertheless, he said it was an attractive time to invest given the current policy support for infrastructure. “The opportunity to lock-in attractive risk‑adjusted returns given the interest rate backdrop and invest early in some of the new sectors the UK government is supporting is something the company has done successfully during its 15-year life,” Didham said.
Our view
James Carthew, head of investment company research at QuotedData, said: “I was hoping that this set of results would see the big disposal under GCP’s capital recycling programme that we have been waiting for, but it seems that we have to wait a little longer. The discount is far too wide, but that means new investors can buy shares on close to a 10% yield in a company that has almost no gearing, sits higher up the capital stack than most listed infrastructure and renewables companies – with the reassurance that brings, and which is committed to reducing risk and freeing up capital for further returns of capital.”
