Solid returns for Sequoia Economic Infrastructure despite macro challenges

Sequoia Economic Infrastructure (SEQI) has announced its annual results for the year ended 31 March 2024. The company delivered a NAV total return of 8.1% for the year, in excess of target return of 7-8%. Total dividends were 6.875p per ordinary share, in line with the target of a 10% increase. The share price total return was 9.6%

Commenting on the performance and the company’s positioning, the adviser noted:

“Throughout the fiscal year, our persistent strategic focus has been on the continuous development and administration of a broad-based portfolio of private debt investments, in a diverse range of infrastructure sectors and subsectors, located in regions with low political/regulatory risk. Our main goal has been to maintain our projected returns while prioritising the reduction of credit risk. During this period, we have maintained our cautious investment strategies such as keeping a substantial part of the portfolio in resilient sectors, prioritising senior debt over mezzanine debt and preserving or gradually improving the portfolio’s credit quality.”

The adviser added that current portfolio highlights include:

• 50.8% of the portfolio in defensive sectors. These include digitalisation, accommodation, utilities and renewables, which are viewed as defensive because they provide essential services, often operate within a regulated or contractual framework or have high barriers to entry.
• Reduction of construction risk in the portfolio from 14.2% to 7.4%, achieved via repayments of investments in construction and higher scrutiny being applied to new construction assets at the origination stage of the investment process.
• 58.6% of the portfolio in senior secured loans and 41.4% in subordinated debt, a substantially higher proportion of senior secured debt than we have previously held.
• Improved the credit quality of new loans made over the year, compared to the portfolio average.
• Maintained credit quality of the portfolio over the last 12 months without a reduction in targeted yields. Our policy not to invest in CCC profile loans remains in place.
• Continued low modified duration of 2.2, with 42.1% of the portfolio in floating rate deals and 57.9% in short-term fixed rate assets, both including the effects of interest rate swaps, and a current low portfolio weighted-average life of 3.9 years. Interest rate swaps have been added to the portfolio as a cost-efficient product increasing visibility of future cash flows and providing protection against a faster-than-expected fall in short-term rates.

Commenting on the results, chair James Stewart added:

“I am pleased to announce another resilient year of performance, despite ongoing challenges in the macroeconomic backdrop. Whilst I remain mindful of the continuing economic uncertainty, I am confident that the company has the ability to remain agile in the face of changing market conditions, as seen in the strong track record of resilience SEQI has built in the past nine years. We have continued to prioritise the credit quality of our portfolio and this strategy which, combined with ongoing market demand for infrastructure debt, enables the investment adviser to be extremely selective as it considers the strong pipeline of future opportunities. We believe that the current yield opportunity presented by the portfolio should allow the company to deliver both stable income and improved NAV in the year ahead. The board remains focussed on the discount to NAV at which the company’s shares trade and continues to address this proactively against the challenging market backdrop.”

SEQI : Solid returns for Sequoia Economic Infrastructure despite macro challenges