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- International Public Partnerships holdings continue well operationally and financially but lower inflation will negatively impact NAV
International Public Partnerships (INPP) has provided the market with an update on its performance so far this year. It says that its portfolio of over 140 projects and businesses has continued to perform well, both operationally and financially, during the period. Its portfolio continues to deliver essential services to stakeholders, maintaining high levels of asset availability. Projects under construction continue to progress well, with Tideway notably completing major construction works during the period; investments totalling c.£83m have been made since 1 January 2024, including in the Offshore Transmission (OFTO), social infrastructure and digital sectors (these investments are in line with previously published investment commitments and were funded from cash generated through the company’s recent realisations totalling c.£20m). It says that, throughout the period, its board has continued to review progress against its strategy for reducing its share price discount, and to determine strategic priorities for the management of its portfolio. However, as noted below, rising inflation is expected to have a negative impact on the NAV, although no indication as to the scale of this has been provided at this stage.
INPP has reaffirmed its annual dividend growth targets for 2024 and 2025, with a 3.0% increase to 8.37 pence per share for 2024 and a further 2.5% increase to 8.58 pence per share for 2025. INPP says that this reflects its ambitions to sustainably grow dividends over the long term, whilst providing full dividend cash coverage from net operating cash flow before capital activity. The second and final dividend for the 2023 financial year was paid on 13 June 2024 so that the total dividend paid during 2023 was in line with previously published growth forecasts of 5.0%. INPP says that strong inflation-linkage of 0.7%2 has also been maintained, generating long-term real rates of shareholder returns.
INPP says that it continues to take proactive steps to reduce the discount to NAV but is mindful of being responsible in its capital allocation. Cash drawings under its corporate debt facility (CDF) remain at nil with £19.2m utilised via letters of credit. Through its £30m share buyback programme launched in January 2024, INPP has, to date, bought back c.£13m of shares.
As at 31 December 2023, INPP’s NAV per share was 152.6 pence, as published with INPP’s full-year results on 28 March 2024. INPP’s investment portfolio valuation is determined semi-annually after advice from the investment adviser and is reviewed by INPP’s auditors. INPP says that, as with the wider investment company peer group, the company’s NAV per share is subject to changes in the external macroeconomic environment, including inflation rates, government bond yields and foreign exchange rates. Taken together, and other things being equal, these factors are currently expected to have a modest negative impact on its last published NAV. It lists the following factors:
Since 1 January 2024, the company has made investments totalling c.£83m. these are:
INPP says that, at the time of writing, it has remaining commitments totalling c.£20.9m across the transport (Gold Coast Light Rail – Stage 3), education (Flinders University Health and Medical Research Building) and digital (toob) sectors.
INPP says that, together with the majority of its investment company peers, its share price has been trading at a discount to its NAV since Q4 2022 and continues to be impacted by the sustained higher interest rate environment. Reflecting this, its board and investment adviser continue to believe the share price materially undervalues the company and have previously committed to take a number of actions to optimise the portfolio and reallocate capital to improve shareholder returns. INPP says that good progress has been made against these objectives to date, having fully repaid the CDF, increasing the dividend for 2023 and dividend target for 2024, commencing a share buyback programme, revising the target returns and recycling capital. In addition, INPP is actively pursuing further divestments and expects to be in a position to provide the market with further updates on or before the announcement of its 2024 interim results (expected in September 2024). At that time, it also expects to provide guidance around other capital allocation considerations, including pipeline opportunities and enhancements to the share buyback programme.
The board says that it intends for the following actions to guide its decision-making process while the share price discount to NAV persists:
INPP held a Capital Markets Day in February 2024 for sell-side analysts and institutional investors (more information and materials are available on its website) and, in March 2024, INPP published its third Sustainability Report alongside its Annual Report. Following ongoing engagements with the company’s investors, a new set of ESG Key Performance Indicators (‘KPIs’) have been developed across the portfolio. In addition, the report provides enhanced ESG disclosures that will support shareholders in meeting their obligations under the EU Sustainable Finance Disclosure Regulation (SFDR) and the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
INPP’s board says that, while the company, and its broader investment company peers, continue to experience challenging market conditions, the continued strength, long-term nature and inflation-linkage of the portfolio’s projected cash receipts together provide it and the investment adviser with confidence that INPP will continue to meet its performance objectives. In particular, the board reminds investors that the implied projected net returns are in excess of 9% and that the projected cash receipts from the company’s portfolio are such that even if no further investments are made, the company should be able to continue to meet its existing progressive dividend policy for at least the next 20 years. INPP has reiterated its intention to take proactive steps to address the discount to NAV that its share price is currently trading and, through a prudent approach to capital allocation, is aiming to create long-term shareholder value. It adds that governments across the jurisdictions in which INPP invests have pressing infrastructure renewal and expansion requirements but continue to be fiscally constrained. The opportunity for the company to assist in the development and funding of these infrastructure requirements provides the board with optimism around prospects for growth in the longer-term.
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