21 March 2024 – For this ISA season we hear from fifteen fund managers in a series of webinars throughout March examining a wide range of strategies and themes to meet the needs of a diversified portfolio…
BBGI Global Infrastructure – Infrastructure
For more information regarding this event, please click here: https://tinyurl.com/mry95545
Capital at risk.
Welcome everyone um I think this is week four of our um our current event um so for those of you who’ve been here all the way thanks for sticking around um I’ll I’ll do a bit of housekeeping for those who um haven’t attended in a moment
Um I don’t think it would it we would hold anything against investors in the last couple of years who’ taken a a fresh look at corporate and government bonds but but but um with the interest rates that have led to that um renewed interest in in those asset classes
Obviously um comes higher inflation um or in fact it’s the other way around isn’t it um and so I think it’s there’s really no better time now with inflation somewhat abating to take a fresh look at some asset classes that offer um pretty predict predictable real returns that
Have been somewhat undervalued by the stock market as a result of that rotation into fixed interest and so I’m really pleased we’ve got the CEO of um one of the leading infrastructure trusts on the London Stock Exchange and indeed a foot 250 company Duncan ball who who runs a trust
That is really at the at the very predictable end of of infrastructure real returns um he’s going to talk you through um the landscape as he sees it and and some information about the trust and then at the end there’ll be an opportunity for Q&A and um as I said for those who
Haven’t attended before I think probably most people have um it’s pretty straightforward there’s a Q&A box that you can type questions in I can I’ll be able to see those and um Duncan and I will have time for a discussion at the end but um I’ll stop talking now and um
Hand over to Duncan thanks very much Alan um pleasure to be here and thanks for hosting and inviting us to participate and uh I’ll walk you through some slides and then uh looking forward to the Q&A and uh the discussion that’ll ensue at the end so um thanks again for having us
Um just the uh obligatory disclaimer that I think every presentation has just saying this is not Financial advice um and that the information I’m talking about is going to be based on our midyear results we’re about to release our yearend results shortly um but uh those aren’t out yet so I’m I’m basing
Everything on our um June 30th uh numbers so just very quickly about bbgi uh our purpose is to deliver social infrastructure for healthier safer and connected societies so that’s our our mission statement um really what we do is we deliver uh lowrisk assets that are uh contracted with the government
Counterparties these are schools hospitals roadways uh Transit projects affordable housing the common theme is they’re all availability based and we’re um getting paid by creditworthy governments so um just to talk about the uh four pillars of our business very quickly uh it’s founded on on four pillars low risk internally managed globally Diversified
And a strong approach to ESG so in terms of the lowrisk pillar it’s all about we’re 100% availability style um our revenues are coming from public sector uh counterparties so very creditworthy counterparties these are contracted revenues that give us very strong predictability and visibility of the
Cash flows over a long period of time and there’s very good inflation linkage with these cash flows the second um aspect of our our investment proposition is we’re internally managed so we’re the only uh infrastructure company listed on the uh footsy 250 that has an uh in-house management team focused on this
So that means there’s no external manager and uh I think they it results in better governance we believe and it also means we’re not interested in just growth in AUM we’re interested in portfolio performance and and nav growth and dividend growth uh the the third pillar is the globally Diversified
Nature of our business we’re focused on doublea and AAA rated countries so we’re uh operating in wellestablished environments with very credible governments uh who have a well-observed rule of law and then the final uh leg to our table is a strong approach towards ESG it’s very much integrated into our
Business model we’re in article 8 um firm under the sfdr the sustainable Finance disclosure regulations so that means we’re um a product that has um a social benefit to it um if we go to the next slide uh this slide just touches on some of the
Highlights and as I say I’ll caveat my remarks here by saying these are based on our results at midy year these will be updated shortly but um the one the one uh figure that is fairly live is um our current dividend yield I thought given the um price that we’re trading at
That would be relevant so this was uh uh today we’re at uh 6.6 dividend yield as well so um the net asset value per share is 147.5 um we have a predictable dividend for next year and the following year we’re increasing it targeting to
Increase at 6% this year to uh 8.4 p and then further growth next year and um and based on current share price we’re trading in a 6% 6.6% dividend yield um and that’s with high quality inflation linkage of 0.6% well covered cash covered dividend yield at midar a little higher than it
Typically is um at year end uh mid year we were just just a tad under 1.7 times we we we said at midye that we expect it to be at 1.3 to 1.4 at year end it’s just there’s certain seasonalities to our uh cash flows that it’s it our
Coverage ratio tends to be a little higher at midy year and then and then settles down to a slightly lower number year end um and we have very go low ongoing charge and uh our nav share nav for share growth since IPO um this is the um dividend and the um and the
Growth in the nav has been 88.8% per anom over that time period um if we go to the next slide um whoops apologies here uh this just talks a little bit about our operating model and our operating model is really focused on on three three key themes as
Well it’s value driven Asset Management it’s a prudent approach to financial management and it’s a very selective acquisition strategy so in terms of the uh value driven Asset Management um we’re very proud proud to report that of our 56 assets they’re all performing well um there’s no lockups or uh blocks
On distributions so everything’s performing is expected and we’ve we’ve operated in that manner for quite some time so we’re we’re very proud of the high availability rate uh that comes out of our portfolio um regarding the second principle The Prudent financial management we have um you know structured our Affairs very
Conservatively so all of our assets are financed on a non-recourse basis uh 55 of our 56 assets have no refinancing risk one asset has a Tron debt where the underlying um base rate has been hedged but we have a Finance refinancing obligation every 5 to seven years but uh
So that’s it so it’s a very very modest portion of our portfolio um we have Assets in different jurisdictions so we have a robust foreign exchange Cur um hedging program that limits our nav movement on Foreign Exchange so that’s been put in place and um we’ve had a
Very we have a very clean balance sheet we reported at midyear that we had um a net debt position of 7.9 million Sterling and we said that we aspire to pay that off by year end so when we update our results uh later this month uh we will give an update on that
Figure but um you can see that it’s it’s historically been very conservative and then the final uh aspect of our operating model is we’ve been very disciplined in our uh acquisition strategy so we’re not again reiterating the theme we’re not motivated on growth in AUM um we’ve used our revolving
Credit facility with some discipline and that’s allowed us to be very selective in what we’ve pursued and the the course that applies in the future any new opportunities would have to be evaluated um and have to be um value a fre of for our investors if I go on to the next slide
Um this just talks a little bit about um the predictable and growing um dividends and and and nav growth since I appeal um so you can see in the top chart that we’ve grown uh our dividends every year uh since uh 2013 the AIC came out this week and
We’re very proud to uh learn that we were included in the uh upcoming dividend hero so those are companies that have increased their dividend every year for at least 10 years but less than 20 and given we appealed in 2011 we’re not yet at the dividend hero uh category
But we’re in upcoming dividend hero um having distributed uh growing dividends for for at least 10 years so we we last year in 20123 we said we would grow the dividend 6% um this year we’re saying we will grow it again 6% uh and then for
2025 where the impact of inflation is a little unknown uh we’re saying we’ll grow about at 2% until we see where where inflation settles out and you can see that um since IPO in in 2011 we’ve been able to grow the dividend on a progressive basis and our dividend
Growth has outpaced uh UK CPI over that period of time I’m just going to flip to the next slide um this slide um shows us the not only is the dividend grown but uh we’ve been able to grow the nav over the same time so um you’re getting it in terms of
Both dividend growth and now growth um and um you know so we’re very very proud of the fact that we’ve been able to provide a total nav return since IP of about one 164% or 8.8% on an annualized basis um just going to tell you a little bit about our
Portfolio so we have 56 assets um in a variety of countries so we’re in Australia Canada the US UK Germany Nether Netherlands and Norway so we’re in very strong uh creditworthy countries um typically ablea and AAA rated um our largest concentration is Canada at 35% UK at 33% so we’re well Diversified um
100% of our assets are availability style assets so that means uh if the asset is available we get paid so we’re not taking demand risk or um regulatory risk these these are contractual Arrangements where provided the assets available we get paid so for instance during covid some of our schools were
Closed but they were available and um so as a result we we still got paid our hospitals were very busy during Co on the other hand in in comparison to the schools we still got paid so it’s a very um very much an all- weather portfolio
That we have and that ties into the next box which is uh 100% of our assets are operational we had one asset that was under construction that became available in um September of last year and we reported that and um in terms of our sector split we’re in uh healthc Care
Blue Light which is fire station and police stations we have at schools we have affordable housing we have one clean energy project where we’re um it’s a hydroelectric facility but it’s an availability payment or we’re paid if the assets available and of course we have transports we have a lot of roads
Um we like roads because um they these are not toll roads typically these are roads that um there may be a toll on them but the toll is collected and we’re paid by governments we’re not taking the demand risk so it’s very predictable Revenue um this is a a slide that tries to
Address uh the high quality inflation linkage within our portfolio so the key message there is that is contracted and mechanical and consequently that’s why we described as high quality so what that means is we’re not subject to elasticity demand we’re not subject to regulatory review um the statistics come
Out in the various regions where we have inflation linkage on our on our contracts and it’s typically RPI or CPI and when when that or or the equivalent in the various countries we’re in and when those statistics get published we mark up the invoice send it to the
Government counterparty and we get paid so it’s very mechanical and it’s not um subject to Market risk or regulatory risk so um hence we call it very high quality inflation with a high degree of predictability um we very much pride ourselves on being a responsible investor in Social infrastructure this
Has really emerged over time um the journey in essence really began in about 2015 when we started to put a bigger focus on ESG and it’s it’s evolved quite a bit over that time period um we put out a standalone ESG report as mentioned earlier we’re an
Article 8 firm so we’re delivering on um socially beneficial metrics um we put out our our upcoming annual ESG report will come out in June but I anyone who’s interested I encourage you to go on our website there’s a lot of disclosure there um some of the things that we’re doing
Is we’ve um looked at all of our assets against climate warming and um looked at that under three different scenarios three different time Horizons under eight different climate perils so that’s given us confidence that our portfolio is very low risk in terms of being exposed to risk from climate change so
We’re not worried about stranded assets we work very closely with our uh public sector counterparties to uh and we’re devel net zero plans at our assets so again that helps deliver um good outcomes for society and for for the environment but it also helps us with
Our clients because they see us as as good stewards of these assets and that’s gone a long way towards uh improving our CL client satisfaction and the and the high availability rates that we’re achieving in the assets um valuation is is obviously a key concern right now uh we use the
Discounted cash FL basis uh to come up with our um value across our portfolio and um at midy year we were using a 7.2% discount rate so that is based on observed transactions there still are some assets trading in the sector that give us confidence in that number but we
Also use a a capital asset pricing model and what you know what we’re seeing right now is a disconnect between how the public markets are valuing these assets and how they’re being valued uh by private buyers whether it’s Pension funds or other infrastructure funds that are active in the
Sector um I’ll just talk very quickly about internal management you know the the key message here is that we think this is a a good governance model it means that the management team is interested in the exact same things that investors are interested in which is Nab growth and
Divid and growth we’re not interested in a larger portfolio we’re interested in you know a high quality per portfolio that performs well um so it also means that we’re working for the company we wake up every day this is all we do we don’t have competing mandates we’re not
Advising other parties and so it means we’re very focused on the portfolio and there’s no conflicts of interests we’re we’re aligned with shareholders in this regard and um the pipeline is obviously a a question that we we get asked about and we have a robust pipeline um but in particular in
This market we will have a strict approach to Capital uh allocation we’ll only consider opportunities if they make sense from a um portfolio construction perspective and their and their value of creative we have a strategic partnership in North America with a engineering construction firm uh We’ve sourced some
Assets from that we have informal relationships with a number of parties in the in the space who uh actively develop and then often sell these assets so we’re very much in the in this center of the information flow for this particular sector but as a say we will
Be very disciplined in our in our approach and then you know just to bring it all together here I wanted to talk about um you know H how we relate currently in the in the market as everyone knows there’s been a quite a large selloff not only in bbgi shares
But alternative investments in general and you know as as we approach uh Isa season I wanted to leave participants with this thought um this is some recent research that’s come out of the AIC and um Nick Brighton has they had a research there has published this report
Earlier in the month and it really shows that when you when you invest in income trusts that are trading at large discounts over the the next five years um there’s been a strong correlation without performance if you’re buying shares at at significant discounts so I think they looked at 128 fiveyear
Intervals using Morning Star data and they found that when you buy um trusts that are trading at discounts of greater than 10% uh you’ve typically seen an 89 um 3% return in the following five years so that equates to about 13.6% annually so I I I will very much
Caveat my remarks here and say that uh you know past performance and and this study isn’t any indication of future returns but I think it’s it’s very much an interesting time to look at bbgi and others in the space or other Alternatives because I think um
Certainly in the case of bbgi I very much believe we have a high quality portfolio that’s currently on sale so um that’s that’s the conclusion so thank you Alan for allowing me this opportunity to present to your audience and um happy to discuss any questions or concerns you may have thanks thanks Duncan
Um um I’m going to test my general knowledge Now by asking you um do you have this is question from the audience do you have any EXP exposure to let’s get this right reinforced autoclaved erated concrete I think that’s what raac stands for you know that there was a yeah series of
Stories about that weren’t there and you mentioned schools and and um do you have any exposure to that and what are the consequences of that if you do the quick answer is no um the longer answer is we released our results um I think at end
Of August last year and the day we released the results um there was a BBC article on the Rock concrete and there was an article in the Guardians so I think every investor meeting I went to for the next yeah uh two weeks that was
Very topical um what we did do though is well before it became an issue back in 2017 we did a full inventory on our on our portfolio to see if we had any of that and we didn’t um so you know the the the outcome is is that we we don’t
Have it but I wanted to use the occasion to just sort of highlight the sort of the the active Asset Management you know that that came out last uh last year in the news but we had done the analysis on our portfolio well and advance in that
In 2017 2018 we’ve done the same thing with fire stopping we um you know we had one building that had clading um external clading uh building in Australia and um we addressed that very early on and we changed it and then the unfortunate tragedy at greenfeld where again cladding became very topical and
We were asked at that point in time do you have any cladding and we said well we did but we’ve changed it out um so we do take an active view on Asset Management we try to identify these problems early that’s or the reason why we’ve done all this analysis on climate
Change is to try to figure out if there’s any any issues that need to be addressed in in advance them becoming becoming more topical and do what’s I mean without being getting too far into to specifics if if an issue does arise you you’re is there is
There a kind of chain of other people that you can go to do you do you have warranties over things and you know you’re you’re not 100% exposed necessarily to to issues with assets that you you control I I think you know couple remarks there one is we’ve got a
Fairly young portfolio a lot of our buildings have been built in the last 10 to 10 years um so they’ve been built to very high standards and they’ve been built to Energy Efficiency standards because these are typically these are being delivered for government so they’re uh there’s usually a um uh built
Built to very much to the current codes and and at at the time and high standards and they’re typically built by tier one contractors there’s depending on the jurisdiction there’s this concept of a latent defect so you you get a warranty um post construction that varies from
One to two years but then if something’s not visible um but manifests itself later on the contractor is obligated to come back and that that period of time can vary between 10 to 12 years so there is a point at which the contractors no longer on the hook but we typically pass
Down the day-to-day management to very creditworthy counterparties that do the the maintenance on the buildings some buildings and and and assets we maintain long-term life cycle risks but we have very uh well-developed models that and budgets for those items so uh it hasn’t it hasn’t been an issue for us does that
Address your question yeah yeah I’d like to come back to a couple of examples of projects in a bit but there’s there’s quite um I think this is quite a fundamental question it’d be good to to clear up um from the audience which is um can you just explain what um
0.6% inflation linkage actually means and and and What proportion of your revenues are inflation linked and are there caps and collars or any other any other kind of terms that might lead those to be renegotiated so so great question um in terms of we have 56 assets around the
World so each one is slightly different in terms of what the project agreement says but the the general concept is on every one of our projects there is some form of inflation compens um because you can imagine you’re you’re not going to maintain a building for 25
Years or a roadway for 30 years without having some kind of protection against increasing costs so each project comes up with a or jurisdiction comes up with a an inflation factor in in the UK it’s RPI um typically on our contracts but in in other jurisdictions it might be the
CPI or the equivalent um for some of our roads it might also include other indexes but we’re getting we’re getting those um increases there are no caps and callers um it it is what it is it’s very mechanical it happens uh on the UK projects typically annually in other jurisdictions sometimes it’s quarterly
Uh monthly or semiannually it depends on what is in the contract and when those statistics get published you mark it up um we we’re protected against uh increases in our supply chain because whatever we get from the government we pass down to the operator so if we have
Someone operating our buildings for us you know for instance uh we have some Correctional Facilities Honeywell operates those and um with kushman and Wakefield we have a whole variety of um credible counterparties doing that work and they get passed down that in that inflation compensation as well so it’s
Not a case where your your revenues are going up but your costs are going up more so we’re we’re we’re protected against that and then as I say it it it’s at least annually and it’s not subject to negotiation so it’s not it’s not you’ve got to go apply for it it’s
It’s mechanical it’s automatic and just to make sure that we get a clear a a specific answer for our viewer the what what actually does .6% oh sorry I yeah I was I apologize I I kind of lost track there so the not not. 6 what that means
Is that if inflation in all regions was 100 basis points higher than our expectation so 1% higher you would get uh 6% return higher so it’s not one: one it’s it’s you know 0.6 it’s almost half to one so if inflation outpaced uh our assumptions by 100 basis points by 1%
You would get a a a 50 basis point increase in your return yeah it’s somewhat analogous to beter on the market yeah so it’s the the way we look at it is in an inflationary environment if you buy guilts you’re just you you have no inflation protection what you’re
Getting with bbgi is a 6.6% dividend yield with about half to one inflation correlation so uh you’re protected against better protected against inflation than you would be with um you know by buying a buying a bond yeah yeah you’ve said to me um for Dunc and I think
That you could continue to increase your dividend for 15 years if you never bought another asset um but there’s some questions about buying other assets here and and and um obviously on a discount raising capital is is on hold but you know there’s a there’s there’s a there’s a
Long future for bbgi so do you see any kind of opportunities with um other infrastructure funds that may be higher up the risk Spectrum where there might be some selling that that you know there’s a there’s a price there’s a risk reward that might be interesting to to bbgi and more
Generally as you mentioned you’ve been listed for quite some time now do you see um a kind of evolution in in what infrastructure means so do you do you anticipate what how do you anticipate the company company’s portfolio evolving if it was a if it was it became a reflection of what
Infrastructure will be in five years you know obviously the European economy and the US economy are electrifying um and so there’s other parts of infrastructure that maybe weren’t so prominent when when you you launched how do you how do you see that all playing out okay well there’s a couple questions
Packed in there so I’ll try to I’ll try to get to each one of them one of them is is a is about growth and um these are concession Investments so at the end of the concession period um we the these assets revert back to government so um the the average life of
Our concessions is around 20 just under a tad under 20 so we often get the question well what happens at the end and what happens if you’re not able to uh grow in the in the near term and I think that alludes to your your your point earlier where we could do nothing
And still pay a progressive dividend uh for the next 15 years based on our current portfolio certainly our our aspiration is not to sit here and do nothing for 15 years but it means that we’re not a you know we’re not frenetic that we wake up every morning having to
Buy assets to to continually replenish the portfolio a great example of that would be we bought two assets um in 22 we bought the A7 in in Germany which is a roadway and we bought a um John Hart Generating Station in British Columbia Canada and we used our corporate
Revolver for that so it’s over 60 million pounds of Investments and we had expected that we would wait and get a little bit more and then come to the market raise uh equity and pay down our revolver but the markets closed and um you know what we said at midye was that
We would pay off our uh Revolver by year end and so when we release our results later this month people can see whether we’ve done that but it kind of demonstrates the ability to grow the portfolio organically without having to do a capital rise just the excess cover uh we reinvested that
In two assets and uh you know have gone have substantially paid that off by mid year and and um or aspiring to pay it off by your ENT so that gives you the concept that you don’t have to uh um do anything right now and and the portfolio will still regenerate over
Time but in the current market Capital allocation a key consideration and it’s and it’s sort of what’s the highest and best use of your capital and is it to buy new projects or is it to buy back your shares and you know as I said at
Mid year our our direction of travel was we said first and foremost we would pay down our debt and then once that’s done we would look at what the best use of capital is we’ve been actively participating uh in the market trying to see if there’s deals um and there are
Some interesting things out there but it’s again we’ve gone from um a fairly frothy Market a couple years ago to more of a I would say a balanced market and it’s not yet a buyer Market because the the reality is a lot of the assets we we buy they’re still performing well
There’re still you’re so there people may have other issues elsewhere in their in their business that’s forcing them to sell these things but generally speaking the assets that we kind of focus on tend to do well in all weather so it’s not that there’s a situation where you’re
Seeing distressed sales right now um so we haven’t seen tremendous opportunities to deploy capital and really attractive returns but we’re we’re we’re we’re still looking and we’re you know we we’re being very disciplined and we’ve grown the portfolio in a disciplined manner over uh the period since we’ve
Ipoed um and then your the final bit of your question was just what the key themes are and you know I think certainly in the UK there’s been a lot of focus on PFI is dead what does that mean for your business the reality is what the business we’re in is providing
Critical infrastructure for society and um usually with government as a counterparty the the reality is across the globe the certainly the countries we’re focused on government’s balance sheets are stressed um there’s a need for private Capital to invest and and and manage these assets so we’re seeing a lot of opportunities maybe the
The the nomenclature has changed they’re not being called pfis or ppps but Mutual investment models or nonprofit distribution models ex but the theme is the same we’re getting paid by governments and I think it will be you know uh digitalization is is a big theme decarbonization and de globalization and investing in critical
Infrastructure because it’s so important to society to to you know to continue to invest um to you know the the nuts and bolts of daily activity is is fundamentally entrenched in infrastructure so yeah yeah thanks thanks Duncan and um yeah thanks for putting up with me rolling three
Questions into one there um there’s there’s a there’s an interesting question here and I think this is could be a good opportunity to kind of clear up a misconcept potential misconception so um I’ll ask I’ll ask the question and you’ll know why I think it’s a Mis A misconception but I think
It’s worth answering it um because of that could you please provide an indication of your Revenue margin cash flow visibility over the next few years and the profile of your contract renewal cycle well so okay so there the the um our our revenues um I don’t have the
Slide here but our revenues go out until 2052 and they’re very predictable um that you know there’s some variations that you know depending on what happens to inflation they could a little bit higher a little bit lower but um they’re they’re they’re very predictable uh they
Tend to go in you know they’re not uh entirely smooth there’s periods of higher and lower depending on the on the cash flow Cycles um but we have a tremendous amount of visibility uh compared to a typical business and that’s what allows us to make the statements like that we can pay a
Progressive dividend for the next 15 years um at the end of the concession the asset reverts back to government um so it you know there some of very few of our assets have a renewal option but a couple of them do but more more likely it’s it’s that we continue to invest and
So when we went public in um 2011 our average concession life was about 24 years and now 12 years on we’re just on the other side of 20 at 19 and a CH so it has come down over 12 years but it’s been um it’s been a slow Decline
And we think we can continue to invest in in new assets over time but as I say if we did nothing um we could pay a progressive dividend for the next 15 years but certainly that’s not our plan and just just to be clear this isn’t like property is it it’s not like
There’s a there’s a break at you know there’s a leaste renegotiation after five years when you sign a concession that’s unless you chose to sell to sell that yeah I mean one of the opportunities you know I don’t want to overstate it because um but one of the
Opportunities we’re seeing is in in some of our discussions a lot of the governments we’ve we working with have S signed Paris aligned uh Net Zero pledges and and they’re thinking how do we deliver on our on our Net Zero so we we are engaged in discussions with some of
The clients saying would you be interested if we almost a blend and extend using real estate parlament where um if we were to upgrade the building the the U make it more energy efficient Etc uh decarbonization you know would if we did that investment would you consider
Extending for a period of time to allow us to recoup that Capital so we may see some uh extensions within the portfolio but um you know the these are assets that eventually expire but as I say it’s it’s it’s like running a bond portfolio you have bonds that mature and you take the
Proceeds and you buy uh bonds that are not mature that have have a long a long duration before they mature so it’s it’s a similar approach yeah yeah do you want to do you want to just talk a little bit switching um Lanes a little bit do you want to talk about
Um how the discount rate moved across the rate cycle and how sensitive you are you know what are your what are the key um sensitivities that that will will change your nav this is all this is by the way for for for um viewers um this is in the reporting account there it’s
This is always um graft out isn’t it but but it’d be worth see if I think I have a I’m going to see if I can find a SL I don’t know if people will be able to see this but um yeah I’ll yeah okay great
So one of the questions we say we get is you know you’re you’re actively a bond proxy and we would argue hey we’re we have a lot of attributes like a bond but we’re not a bond proxy because a bond is very sensitive to changes in interest
Rate so if you look at the first sensitivity there what happens if you have a 100 basis point change in in interest rates or or discount rates rather um it obviously uh impacts the valuation of the portfolio so it’s quite a large number but what we told our investors is that it’s very
Rare you know it’s it’s unheard of that you just get a change in discount rates in isolation it usually happens in conjunction with higher inflation and higher interest rates so because our portfolios all been fin you know everything’s been financed um on a non-recourse basis and 55 or 56 assets
Have no refinancing obligations we’re not subject to interest rate risk the way say a real estate portfolio would be where you’re having to but what what’s interesting there is we um because of the inflation linkage if you have higher interest rates you might have higher discount rates but you
Get the offsetting benefit that we have a lot of money on deposit at the various project accounts so we benefit from higher interest rates so that offsets it and the inflation linkage offsets it so the sensitivity that really is probably appropriate is what happens if you have
A Hond basis point change in inflation deposit rates and discount rates and you can see that the sensitivity to the to the uh valuation is much more muted so and that’s why um you know our discount rate has changed you know quite a bit since um um
Interest rates started to move up we went from 655 to uh 7.2 at midy year so um we have adjusted but it hasn’t had a huge impact on valuation the way it might have had had you uh you know if you bought a a long duration Bond would be more sensitive to
Changes in interest rates than our portfolio because the offsetting benefits of inflation and and the significant cash deposits yeah yeah um we I said a bit earlier we could come back and talk a little bit about bringing a couple of assets to life and and we’ve already touched somewhat
On one of the questions but but um worth rolling that into talking about a couple of assets um one of the viewers is asking about responsibility for maintenance of of assets so so I guess if you pick a couple of examples and talk about the the the maybe talk
About a bit more widely about the the life cycle of when you pick them up because so for example um you know development risk or not um when do you enter the scene how does it how does a deal actually get structured what’s the what’s the ownership that that the trust
Has so a typical deal maybe you know we do do some development where we take assets through construction with you know where we we’ll be an investor and there’ll be a construction company but that’s historically been a small part of our business um as I say we had an asset
That became operational in um September a roadway in Canada but um you know typically we’re we’re buying Assets in the secondary market so that’s typically construction companies that invest in these projects see them through construction they’re drisk once they become operational they want to sell recycle their capital and pursue another
Project so we’re we’re typically buying a project that is in operation uh it’s been built by creditworthy contractors so if there are problems they they come back but there’s rigorous review of these assets by lenders and Technical advisors and governments and everything to make sure that they’re um
Built to the appropriate standards and then reach substantial completion on most of our social assets the um buildings we typically have a a credit worthy counterparty um that is doing the facilities and maintenance and we have variety you know we’re not exposed to one company it’s a it’s a
Variety across the portfolio and they would do the day-to-day management and they would do the life cycle so if the walls need painting if the um boiler needs replacing they would do that as part of their fee on some of the roadways it’s a little different we we
We as an investor will take some of the lifecycle risk but roadways are a little more predictable in that it’s different than a in say a hospital where if the lift breaks you’ve got to fix it immediately roadways you tend to have um you know there you have to we say U
Black green and gray uh you have to or or white green and gray you have to the white is following the snow in the winter the green is cutting the grass in the in in the summer and the gray is dealing with the ashphalt so typically
On a roadway it has to be maintained and and made available and there might be an overlay or resurfacing after about 15 years and then again at handback but those are all factored into the budgets and accounted for and um and um there’s Reserve accounts and everything else and
That that’s why we have the the significant cash reserves in our in our business is it’s in anticipation these life cycle events and and we earned interest on that so does that answer your question now yeah very well yeah good thanks the the I think what we’ll finish on and I
Think everyone will understand if you have to be um careful in what you say is just on the discount and potential um ways to address that well I think um you know I won’t claim uh to be the originary of this idea it was this our some of our corporate Brokers
Are Jeff and and winter flens and Jeff but Jeff has come out with a piece where they’ve said the you know the the seven henchmen of the large discount and they give a a a series of reasons but they’re saying it’s it’s the uh Paradigm Shift
The end of the cheap money um it’s a function of multi asset fund shrink it’ss a lot of the multi asset managers have seen their um um AUM decrease and so that’s resulted in selling um it’s negative UK Equity Fund flows it’s the absence of the
Retail buyer in the UK to the same degree um there’s been some in the Investment Trust space there’s been some uh reputational issues and governance issues you know there’s been home R and digital nine and and Neil W Woodford and you know and then more recently it’s the
Cost disclosure issue where uh there’s been a lot of focus on some of the self-imposed penalties as a sector that we’ve sort of governance has created government has created for us where well we’re shooting ourselves in the foot by by making these products uncompetitive by just um legislative requirements that
Are that are not really helping anyone so I think it’s the Confluence of of all all those events um and you know I think at least from our perspective our business has not changed we’re getting we’re delivering critical infrastructure that Society values we’re doing it well we’ve got happy clients uh we’ve got
Happy customers we’re we’ve got engaged employees we’ve got an Engaged team and the the assets are all performing well um the one aspect that is beyond our control is what happens in the market and um what we’ve been trying to do to address that is um getting out and tell
Participating in events like this and telling the story why we think the shares are undervalue and when we’re trading at a large discount as as as are many in the um renewable and alternative space we think that there’s potentially you know this is my personal opinion um
Not giving you Financial advice but uh I think the the stock is undervalued and and I have a lot of my net worth uh tied up in in this vehicle as as ases our management team uh as do our supervisory board and we’re in a closed period now
But uh I bought shairs in the last open period in December as did our C CEO or CFO and and and many of our board members so we we’re Believers in this in the stock and we’re Believers in the in the product it’s it’s you know we’re delivering critical infrastructure that
Society needs and we’re doing it well and we’re getting paid by creditworthy governments and we’ve constructed a portfolio that’s that that I think is is quite conservatively structured and robust so yeah I’m a I’m bullish on the on the on the on this stock at the current price but I can’t really give
You much more than what uh you know what what we’re observing is the modist for this of course it’s always good so when you come to look at a discount to have a list of good reasons why it exists that that you know because not all discounts are the same
And it’s really helpful that you you you’ve listed quite a powerful set of external factors the the discount isn’t is isn’t a kind of reflection of your company it’s a reflection of wider wider factors um and I’m not going to tie myself down to any past performance being a guide to
The future either by saying anything about mean reversion um but Duncan really appreciate you answering um some really good questions from from the the viewers and and thanks so much for your time um this presentation will be on our website in recorded form and the slides will be available to download and I
Think there’s quite a bit of supplementary information at the back that we perhaps didn’t have time to go over today and as ever Duncan and the team have several sleep sleepless nights I’m sure in the preparation of their report and accounts and um I always recommend to anyone thinking making an investment to
Go and read that excellent document um you can find it on Duncan’s website um Duncan thanks so much for time then thanks very much for having me and uh as I say there’s there’s a lot of information in the in the pack that will be shared afterwards a lot of
Information on our website um we release our results at the end of the month and those are U going to be broadcast on a for retail investors and for uh institutional investors and that’s all on our website and if U my email is on the website if people have any questions
For me or the management team we we’d love to hear from you and uh thank you for your time today I really appreciate it excellent thanks everybody