Agree. I'm fairly confident that HICL is a well run trust - it certainly appears that way to me. I think the question marks are more around the robustness of the financial deals that UK focused infras invest in. Governments can change the rules very quickly in ways very damaging to investors!
I hold HICL and some other infras as a small part of SIPP portfolio in run up to retirement - goal to provide regular income that is at least inflation proof, maybe for the rest of my life - so I am not concerned by sp directly (I may never sell!) except as a buying oppty. My concern is more the resilience of these trusts and this model.
Key questions for me
- SP fluctuates but published NAV apparently shows a steady up ward trend. How reliable/real is that NAV number with all the accounting behind?
It was reassuring to hear that HICL had contingency plans, as is good commercial practice - at least they were looking at the actual facts, rather than the government/opposition/media who were too busy politicking and polishing their ideologies to deal with reality.
My holy grail these days is an investment trust that can consistently and safely pay 4% a year while delivering a little capital growth.
In these income straitened times, there is bound to be at a premium charged for that.
In HICL's case the premium has been over 6% since I first bought into the trust at launch. Sometimes the premium has been above 20%. Once it nudged 30%.
Which was patently ridiculous.
I've always been slightly uncomfortable with super high premiums - sooner or later they tend to revert to the norm. And to me, all infrastructure trusts seem to have at least a whiff of financial smoke and mirrors about them!
But this has never struggled to pay out 4-5% a year so I've stuck with it. Plus the share price has grown - although it's gone nowhere for two years.
So yesterday was a dramatic day.
The HICL premium fell to 0.4%. It has NEVER, since launch in 2009, been that low. Which reflects fears that the whole UK PFI edifice might be slowly and messily dismantled.
So is now a good time to buy? Interesting conundrum for those of us who hold this.
Will this fall to a 10% discount?
I can see arguments for variously selling, holding and adding.
The killer question, everything else being equal, is what shape will UK PFI be in, in the future?
Can it regain the thin veneer of fiscal credibility it once had? (Some of the economic arguments whipped up by the current media storm seem pretty damming.)
Will that 'Oh Jeremy Corbyn' song sweep Labour into power?
Politics are the scourge of investing - they make the whole thing feel like a bit of a punt.
So, I know why we have seen a fall of 8% in recent weeks, but arent these discussions by the tories and threats by labour just that. Surely the government needs to keep up on infrastructure projects, and they have no money to do it. Companies like HICL have to provide the capital for them. Longer term this should be safe... No ?
This was written back in June and the share pricehas fallen somewhat since then, so maybe they are re-evaluating their positions.
This extract is interesting :-
""HICLs most recent reported results are a good illustration. Over the year to 31 March 2017 NAV/share grew from 142.2p to 149.0p, excluding dividends paid of 7.6p/share. However, the 6.8p/share growth in NAV included 2.1p as a result of share issuance at a premium and 2.8p as a consequence of an aggregate reduction in the discount rate applied to future cashflows.
Therefore, underlying growth in the value of the portfolio over the year was 1.9p/share; or 1.3 per cent. The dividend paid totalled 7.6p, an attractive yield of 4.5 per cent based on the current share price, but in terms of capital growth over the year HICL delivered a negative real return, once the gains from lowering its aggregate discount rate and issuing new stock at a premium are excluded."""
When you add in the 1% management charge it's real return I guess is even more negative.
This is probably why the share price has fallen so much.
That and the 2nd reason which is the scarcity of quality investments out there, also described in more detail in the article.
And 3rd -- the belief that there is a degree of investor complacency around the potential downside risks to NAV relating to rising risk free rates.
I have also topped up. I fratically looked for a news item but there was nothing so I took the plunge. I also hold JLIF and noticed that was down over 4% at that time. There was no discussion blogs so I had no idea that it was a respose to a Corbyn policy statement. We have four years to persuade the milennials that all the promsed spending by Labour will need to be paid for as well as the current £1.7 trillion of debt rising to 2 trillion. Perhaps they think inflation will help!
The Times dealt with that point yesterday, so it looks like delayed reaction. I agree Labours suggestion doesn't sound likely or even legal. Assuming Corbyn does win the next election (please, if there is a God, no) that is potentially over 4 years away then presumably any attempt to enact this policy would be challenged in the courts. Either way the possible risk is many years in the future. A lot can happen and in the meantime, the SP premium is as low as it's been since launch with a medium term yield of just under 5% looking safe. I still think HICL is a buy, or as The Times suggests today, at least a hold.
stout - it's in response to Labours announcement that they would take back all Private Finance Initiative projects (a large % of Infrastructure companies business) into public hands and restrict the existing contracts so that offshore companies shareholders can no longer take benefit for the expensive long term contracts.
It doesn't sound realistic does it?
But then again Teresa May is so utterly useless that she may have already handed the country back to Labour at the next election, which at this rate isn't far off.
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