HICL Infrastructure H2 Earnings Call Highlights

Key Points

• HICL Infrastructure reported a strong annual performance, with total NAV return of 10.3% and total shareholder return of 13.1%, supported by operational gains, asset sales above carrying value, and share buybacks.
• The company completed £536 million in asset sales versus a £200 million target, while cash generation remained solid enough to support dividend guidance of 8.65 pence for fiscal 2028.
• Management emphasized disciplined capital allocation, highlighting portfolio strength in water, transport and digital assets, alongside continued rotation out of PPP assets and selective new investment activity.

HICL Infrastructure LON: HICL said its annual results were supported by strong operational performance, accretive asset sales and improved cash generation, as the infrastructure investment company outlined a higher dividend target and continued focus on disciplined capital allocation.

During the annual results investor presentation, Edward Hunt, Head of Core Income Funds, said HICL delivered a total net asset value return of 10.3% for the year, including NAV growth of 7.1 pence per share. He said the underlying portfolio return was 12.2%, ahead of expectations, driven by performance from the company’s growth portfolio and asset sales completed at premiums to carrying value.

Hunt said HICL has now delivered a NAV return of 8.5% per annum since its 2006 listing, including nearly £1.50 of dividends and £0.60 of NAV growth. He described the latest year as one marked by “selective rotation, strong operational performance, and cash flow that supports both continued dividend progression and NAV growth.”

Asset sales and buybacks boost NAV

HICL completed £536 million of asset sales during the year, above its £200 million target. Hunt said total divestments over the past three years have exceeded £1 billion, representing close to half of HICL’s market capitalization, with a weighted average premium to NAV of 11%.

Mark Tiner, Managing Director and CFO of HICL Infrastructure PLC, said active management by InfraRed and the board added 5.3 pence of NAV per share in the year. That included 1.6 pence from £103 million of share buybacks executed at an average discount to NAV of about 24%, and 3.7 pence from portfolio management and asset rotation. Tiner said 2.2 pence of that value enhancement came from the sale of the A63 Motorway at a 21% premium to carrying value.

The company ended the year with NAV per share of £1.602, up 4.6%. Tiner said fund-level gearing was 7.1% at year-end, with net debt of £62.3 million, reflecting £150 million of private placement notes less £87.7 million of cash. HICL had £304 million of liquidity available at year-end, while its £395 million revolving credit facility remained undrawn.

Hunt also highlighted a total shareholder return of 13.1% for the year, reflecting share price appreciation and the company’s dividend. He said the share price had risen further since period-end through the time of the presentation.

Cash generation supports dividend guidance

HICL said dividend cash cover was 2.38 times including disposals and 1.10 times excluding disposals. Funds from operations covered the dividend 1.59 times. The company issued dividend guidance of 8.65 pence for fiscal 2028.

Tiner said the portfolio generated £303 million of operational cash flow. The “yielders,” which represent 53% of portfolio value and largely comprise PPP assets, generated £164 million of cash after debt service, tax and lifecycle costs. The “growers,” representing 47% of portfolio value, produced £272 million of EBITDA, up 9% from the prior year, and generated £139 million of cash before growth capital expenditure.

After deducting company expenses, HICL had £256 million available for capital allocation decisions. Growth capital expenditure of £79 million, mainly at Affinity Water, Fortysouth, Altitude Infra and Texas Nevada Transmission, reduced distributable cash from the portfolio to £177 million, covering the annual dividend 1.1 times.

Hunt said the company’s payout and reinvestment settings now support NAV growth. In response to a question about dividend growth trailing inflation, he said HICL’s dividend policy is progressive rather than inflation-linked, and that the board balances dividend growth with NAV growth as part of the total return proposition.

Portfolio performance led by water, transport and digital assets

Ross Gurney-Read, Director of Fund Management at HICL Infrastructure PLC, reviewed performance across the company’s major holdings. He said Affinity Water, HICL’s largest investment at 13.6% of portfolio value, finished the first year of its regulatory period with EBITDA slightly ahead of forecast. HICL made a £50 million incremental equity investment in Affinity Water during the year and received its first dividend from the asset in more than five years.

Gurney-Read said the Affinity Water distribution equates to a yield of around 4% to 5% of HICL’s investment value and is expected to recur at a similar level during the current control period. He added that HICL reduced the discount rate for the investment by 10 basis points, reflecting improved cash flow certainty after dividends resumed.

Texas Nevada Transmission continued to perform well operationally, Gurney-Read said. He noted that Cross Texas Transmission’s allowed return on equity was confirmed at 9.6% in its regulatory settlement with the Public Utility Commission of Texas, in line with valuation forecasts. He also pointed to growing demand for electricity in Texas from data centers as a potential driver of future growth capital expenditure.

For transport assets, Gurney-Read said international train path bookings at LSPH rose 4% year over year, while retail income outperformed forecast by 9%. He said progress toward a second international operator remains the key priority for unlocking value in the investment, citing regulatory developments involving Virgin Trains and other potential operators.

HICL’s additional 6.5% stake in Cross London Trains completed after the year-end. Gurney-Read said the incremental investment is expected to result in a “substantial uplift” to NAV per share at the next reporting period, adding more than one penny.

In digital infrastructure, Fortysouth recorded EBITDA growth of more than 10% for the second consecutive year and signed 60 new colocation agreements during the year. Altitude Infra’s valuation was broadly stable, despite EBITDA coming in below forecast, with fiber penetration rising to 63% from 56% in the prior year.

PPP portfolio remains stable as asset rotation continues

Gurney-Read said HICL’s PPP assets, representing 57% of the portfolio by value, largely performed in line with expectations, with aggregate availability above 99%. He said HICL recognized a provision against Lewisham Hospital during the period related to an ongoing contractual dispute, while three assets were successfully handed back to public sector ownership.

HICL sold seven PPP assets during the year for a combined £225 million. Tiner said the divestments reduced exposure to healthcare assets, lifecycle risk and political risk, while improving the portfolio’s inflation correlation to 0.8 times.

The company also sold the A63 Motorway after nine years of ownership by HICL. Gurney-Read said the disposal realized a 14% internal rate of return and 2.2 pence of NAV outperformance for shareholders.

Management emphasizes discipline on new investments

Hunt said HICL is operating in what management views as a multi-decade infrastructure investment cycle, driven by energy resilience, digitalization and demographic change. He said the company recently screened more than 80 opportunities but advanced only a small number, with Cross London Trains the sole executed transaction.

In response to questions, Hunt said HICL evaluates new investments against the return available from share buybacks, using the share price and discount rate sensitivities to determine an effective hurdle rate. He said the board remains closely involved in capital allocation decisions.

Asked about the discount to NAV, Hunt said his target level is “no discount,” while noting that discounts have been broadly sector-wide over the past three years. He also highlighted a revised fee structure under which the investment manager’s remuneration is based 100% on HICL’s market capitalization, which he said further aligns InfraRed with shareholders.

Management said HICL is not looking at Arqiva, which was raised in a question regarding DG9’s potential divestment process.

About HICL Infrastructure LON: HICL

HICL is a UK-listed infrastructure investment company. We invest in infrastructure for local communities and to support the delivery of essential services, working in partnership with the public and private sectors.

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