International Public Partnerships Limited (LON:INPP), the listed infrastructure investment company has issued a portfolio update for the period 1 July 2024 to 29 November 2024.
Mike Gerrard, Chair of International Public Partnerships, commented: “INPP’s portfolio has continued to perform well during the period, generating consistent financial returns whilst facilitating the delivery of essential public services. We continue to make progress with our initiatives to optimise the portfolio, address the discount to Net Asset Value (‘NAV’) at which the Company’s shares currently trade, and deliver value to shareholders. This includes the Company making additional divestments during the period which has increased the amount realised over the past 18 months to over £260 million, equivalent to c.10% of the portfolio by value1. The Company has also continued to buyback shares under the previously announced share buyback programme of up to £60 million. We remain confident in the Company’s ability to navigate macroeconomic uncertainties, underpinned by the performance of its investment portfolio.”
FINANCIAL PERFORMANCE1
· As at 30 June 2024, the Company’s NAV per share was 149.5 pence, as published in the Interim Results on 5 September 2024.
· The Company reaffirms its 2024 dividend target of 8.37 pence per share which represents 3.0% growth compared to the 2023 dividend and continues its track record of growing the dividend every year since the IPO in 2006. The interim dividend of 4.18 pence per share for the six months to 30 June 2024 is expected to be paid on 19 December 20242. Beyond 2024, the Board expects to revert to its long-term annual dividend growth rate of c.2.5%2.
· The Company will increase the frequency of its dividend payments, from semi-annually to quarterly, from 20253. This will provide investors with a more regular income stream and demonstrates the Company’s commitment to ensuring predictable and consistent returns for shareholders.
· The Corporate Debt Facility (‘CDF’) was fully repaid in January 2024 and remains undrawn4. During the period, the Company reduced the size (and associated commitment fees) of the CDF from £350 million to £250 million which demonstrates a disciplined approach to cost management whilst maintaining the flexibility for future investment opportunities as may arise.
· 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, since 30 June 2024, changes in these factors are currently expected to have a modest negative impact on the Company’s last published NAV per share. The components driving this include:
· Inflation rates in the geographies where the Company operates are slightly below the forecasts made as of 30 June 2024. This minor deviation is expected to have an insignificant impact on the NAV per share;
· Yields on the government bonds issued by the countries in which the Company is invested are broadly in line with the levels seen at 30 June 2024 with the exception of the yields on UK government bonds which have increased slightly. In isolation, this would imply a modest negative impact on the valuation of UK investments, but it is worth noting that the discount rates that will be adopted as part of the 31 December 2024 valuation will be determined by taking into account other factors such as the positive performance of the investments and market-based evidence of pricing for infrastructure assets and businesses; and
· The Company has observed a strengthening of Sterling against all the currencies it is exposed to. Other things being equal, this would have a minor negative impact on the Company’s NAV per share.
CAPITAL ALLOCATION
The Board and the Investment Adviser remain focused on optimising the portfolio, recycling capital and implementing other measures to enhance shareholder returns. This includes having bought back over £38 million worth of shares under its existing share buyback programme of up to £60 million, which is currently expected to run until the end of Q1 2025. The Board acknowledges the importance of the share buyback programme and would expect to expand the programme should the Company’s shares continue to trade at a significant discount to their NAV.
Since 30 June 2024, the Company realised proceeds of over £40 million, taking the total realised proceeds for the last 18 months to over £260 million. All of the divestments made have either been in line with, or modestly above, the most recently published valuations. The divestments and investments made since 30 June 2024 are set out below.
· August 2024: The Company announced the divestment of its stake in the Three Shires PPP portfolio at a price of c.£14 million which was in line with the 30 June 2024 valuation. The portfolio comprised the design, build, financing and maintenance of four community healthcare facilities.
· September 2024: The Company announced it had raised c.£30 million from a partial disposal of its Family Housing for Service Personnel (‘FHSP’) investment; the sales price was in line with the Company’s 30 June 2024 valuation. The FHSP investments are in the form of mezzanine debt investments secured against seven operational public-private partnership (‘P3’) projects and comprise c.21,800 housing units across the United States.
· October 2024: The Company made a further c.£15 million investment into BeNEX to enable the acquisition of Abellio’s rail operations in Germany from the Dutch State Railway. The transaction will result in BeNEX having interests in seven train operating companies (‘TOCs’) and increasing its service volume from c.48 million train kilometres per year to c.65 million from 2025. The projected economics of this investment were considered significantly more attractive, over the medium to long-term, relative to the economics of engaging in a share buyback5.
· Other investments: During the period, the Company invested c.£6 million in respect of three long-standing commitments to the Flinders University Health and Medical Research Building, Gold Coast Light Rail – Stage 3, and toob. The remaining commitments to invest in these three assets currently total c.£14 million and are expected to be funded over the next 15 months.
PORTFOLIO UPDATES
· East Anglia One OFTO (‘EA1 OFTO’): The Company reported in its 2024 Interim Results that EA1 OFTO was operating at half its physical capacity having suffered an offshore cable fault. Repair works have been completed and the EA1 OFTO has returned to full service. Evidence gathered to date indicates that the cable fault was beyond the reasonable control of the EA1 OFTO and therefore we continue to believe that there will be no material financial impact on the Company owing to manufacturer warranties and regulatory protections.
· Thames Tideway: In October 2024, it was announced that Tideway is now starting to protect the River Thames from sewage pollution for the first time6. Data shows that during heavy rainfall in London on 23 September 2024, the tunnel prevented more than half a million cubic metres of sewage from entering the River Thames demonstrating the critical role of the project. The project is due to be fully operational in 2025.
· Public-private partnerships (‘PPP’) handbacks: The first INPP scheme to go through a handback process is Hereford and Worcester Courts which expires in late 2025. Activities to support the handback of the assets and transfer the service provision are already substantially progressed.
The Company is also ensuring that it is well positioned to facilitate an efficient and timely transfer of its other PPP assets and their associated services when those concessions come to an end. The expiry dates for the remainder of the Company’s PPP concessions are spread over the next 25 years with less than 4% of the portfolio by value being handed back before 2030.
CORPORATE GOVERNANCE
· Giles Adu joined the Board in September 2024 as a non-executive director and has been appointed to each of the Company’s Committees. Giles brings over 30 years of experience in investment management and investment companies.
OUTLOOK
The demand for infrastructure investment remains strong across the geographies in which the Company invests. Internationally, we believe that the pressure to upgrade public infrastructure coupled with fiscal limitations means there will likely be increased appetite for partnerships with private investors to deliver much-needed infrastructure.
International Public Partnerships recognises that the recent policy shifts in the UK Autumn Budget, particularly in relation to schools, healthcare facilities and transport networks, will seek to deliver greater social equality in the UK and will aid sustainable social infrastructure development for the benefit of local communities. There is significant government appetite for private capital investment to support infrastructure policy, which creates attractive opportunity for INPP and its shareholders.
Through the continued evolution of the portfolio via further investments in projects closely aligned to the Company’s responsible investment commitment, the Company is well-positioned for future growth.
