International Public Partnerships has announced results for the year to 31 December 2024. The NAV per share decreased to 144.7p (31 December 2023: 152.6p) primarily driven by an increase in discount rates, reflecting the sharp rise in underlying government bond yields during the period. As a result, the weighted average discount rate has increased from 8.4% as at 31 December 2023 to 9.0% at 31 December 2024.

The full year dividend was 8.37p, which the statement says was fully covered by cashflows. The target is to increase dividends by 2.5% per annum over 2025 and 2026. Dividends will be paid quarterly from June 2025.

In an effort to address the discount, £55m of shares have been bought back since January 2024. This added 0.5p to the NAV.

Sales of assets raised £44m during the year, taking total realised proceeds to c.£260m over the 18 months to 31 December 2024. All divestments have taken place at prices in line with the most recently published valuations prior to disposal [suggesting that the NAV valuations are robust]. The trust also repaid the balance on its corporate debt facility, and then reduced the size of the facility from £350m to £250m.

The company made c.£92m of new and strategic follow-on investments, where it felt that the projected returns were greater than the returns of the divested assets and of those implied by a share buyback.

Mike Gerrard, chair said: “The board continues to believe the share price at which the company is currently trading relative to the NAV materially undervalues the company. Reallocating capital to enhance value for shareholders continues to be the primary focus for the board and adviser, having realised c.£260m through asset recycling in the 18 months to 31 December 2024. The realisation proceeds achieved were in line with the last published valuations. The company is continuing its divestment programme in order to increase the quantum of capital able to be returned to shareholders with an enhanced target of returning up to £200m.”

Measures to tackle the discount 

The board is implementing the following package of measures. It believes these will further strengthen the company’s position in the current environment and ensure it is well-positioned for the longer-term:

1. Changes to the fee and management arrangements

• The board and the adviser have agreed, subject to finalisation of contractual arrangements, the following changes to the Investment Advisory Agreement which will be effective from 1 July 2025
  • The base fee payable in respect of each quarter will be based on the equal weighting of:
  • (i) the average of the closing daily market capitalisation of the company during that quarter; and
  • (ii) the most recently published NAV
  • The base fee payable under the new arrangements will be capped such that the base fee payable will be no higher than under the existing arrangements
• Based on the current share price discount to the NAV, this fee change is expected to reduce the ongoing management fee by approximately 10% per year, providing additional value for shareholders, and further increasing the alignment of interests between the company and the adviser
• Given current market conditions including the potential for the adviser’s pipeline of possible investment opportunities to exceed the current capacity of the company to invest, the board and the adviser have agreed to update the policy relating to the allocation of new investment opportunities to the company. Relatedly, the company’s formal right of first refusal over relevant investment opportunities that come to the attention of the adviser or its US-based shareholders (Hunt Companies and Boyd Watterson) will be ended. This will remove potentially redundant and time consuming processes between the adviser and the company. Both the company and the adviser stress that these changes are not expected to alter the quality, suitability, diversity or volume of investment opportunities being made available to the company in circumstances where the company has the capacity to invest in such opportunities

2. Enhanced divestment programme

• To demonstrate the underlying value of the company’s assets and fund up to an additional £140m of capital returns to investors, the company continues to actively pursue further divestments across its portfolio
• Post-period end, in March 2025, the company agreed to sell its minority interests in seven UK education PPPs to an existing co-shareholder for total proceeds of c.£8m which is in line with the most recent valuations
• There are a number of further processes already in progress and the next realisation is expected to conclude in the second quarter of 2025
• The company’s divestment programme may exceed the amount of capital it intends to return to investors over the period to 31 March 2026 as it continues to consider other capital allocation options

3. Increased capital returns

• The board intends to increase the quantum of capital being returned to shareholders from the current programme of up to £60m, to a programme of up to £200m, over the period to 31 March 2026
• These increased capital returns will be funded by a combination of divestments and surplus operating cash flow generated by the company. While it is expected that the programme may be delivered through share buybacks, other forms of capital returns may also be considered

4. Disciplined approach to investments

• Whilst the board currently prioritises the return of capital to shareholders given the market trading environment, it will carefully consider opportunities to reinvest divestment proceeds into new and follow-on investment opportunities
• Such investments will only be made where they are considered to provide significant broader portfolio or strategic benefits which, taken together with the projected long-term returns, substantially exceed the short-term benefits available through share buybacks

5. Commitment to dividend growth

• The board is forecasting to continue its long-term projected annual dividend growth rate of c.2.5% such that the 2025 and 2026 annual dividend targets are 8.58 pence per share and 8.79 pence per share respectively.

[Again, we have this shift to basing fees on an average of market cap and NAV, I think it would be better if these boards just made the shift to market cap instead, but the fee reduction is helpful. So, too, are the increased buyback targets.]

INPP : International Public Partnerships sets out measures to tackle discount