Annual results from HICL Infrastructure (HICL) show the £2.4bn investment company is taking steps to placate shareholders after the failed merger attempt with InfraRed Capital stable mate Renewables Infrastructure Group (TRIG) late last year.
Following consultation with half of its shareholders, HICL is proposing moving to a biennial continuation vote starting in 2028 if its shares continue to trade more than 10% below net asset value (NAV). They currently stand on an 18% discount.
HICL said although there was widespread shareholder support for the company, the move to a two-year vote was in line with “evolving corporate governance standards” to give investors a chance to exit chronically undervalued stocks.
The company also announced a further change to the annual fee it pays InfraRed. From July, this will be wholly based on HICL’s market value, an improvement on the 50-50 split between capitalisation and NAV adopted a year ago. Because of the discount this will lower the management fee by around 11%, and leave it 24% below the previous level when it was only based on gross assets.
Lastly, a search for a new chair has begun given the incumbent, Mike Bane, who approved the aborted merger proposal with TRIG, will have served the maximum nine years by the middle of 2027.
The company made a 10.3% total underlying return in the year to 31 March with shareholders receiving 13.1% as the discount narrowed slightly. Dividends rose 1.2% to 8.35p per share covered 1.1 times by cash with the 6/.5%-yielder reiterating its 8.5p target for this financial year and set a new target of 8.65p for 2028.
Our view
Matthew Read, senior analyst at QuotedData, said: “HICL’s results provide a good illustration of why its shareholders were not keen on the now abandoned merger proposals with TRIG, with HICL benefitting from strong portfolio performance, accretive disposals, disciplined buybacks and improving dividend cover. The £536m of disposals is particularly interesting, showing that HICL can realise assets at or above carrying value, highlighting that the wide discount that the shares trade on does not make sense. As such, the move to calculate InfraRed’s fee entirely by reference to market capitalisation is a welcome step, as is the proposed conditional biennial continuation vote.”
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