Shares in infrastructure investment trust HICL Infrastructure (HICL) gained 0.7% to 171.2p after it said will keep its dividend flat until 2023 following a rise in UK corporation tax.
The company met its target dividend of 8.25p for the year to 31 March 2021, giving it a yield of 4.8%, and said it would maintain its dividend at 8.25p for its next two financial years. UK corporation tax is set to rise to 25% from 19% from 1 April 2023.
Having considered the corporate tax hike, HICL said its board ‘assessed the impact that a change of this scale’ will have on its forecast distributable cash flow and concluded ‘a continuation of the dividend at 8.25p per share for the year to 31 March 2023 is appropriate.’
It added, ‘This outcome supports the company’s intent to rebuild dividend cash cover, whilst also continuing to enhance the long-term earnings profile of the company within the context of a lower return environment. Future dividend increases will be calibrated against these important metrics.’
NAV RETURN UP 5.5%
It comes as HICL’s net asset value per share stayed flat at 152.3p year-on-year, with NAV total return up 5.5% from 1.9% for the year. The trust has delivered an annualized return of 8.9% since its stock market float in 2006.
The rise in total returns reflects the ‘continued strong operating performance of the diversified portfolio’, HICL said. The trust invests in a range of infrastructure from oil and gas to schools to hospitals, as well as sectors like transport including projects such as HS1.
Headwinds from Covid-19 restrictions and the corporate tax hike were offset by ‘robust’ portfolio performance, underpinned by a majority weighting in core public-private partnership projects which include essential infrastructure that has remained open throughout the pandemic.
The valuation of its portfolio at 31 March 2021 was around £3.01 billion, up from £2.88 billion the previous year.
ANALYST VIEW
Analysts at broker Numis said that despite the dividend being kept flat for the next two years, HICL ‘still offers an attractive yield’ of 4.8%, and added that it has ‘greater certainty than other infrastructure sub-sectors, where revenue streams are more variable, even on a three year horizon.’
However, Stifel analyst Iain Scouller is less keen on the trust due to its current 12% premium to net asset value, which he thinks is ‘expensive at a time when there is: 1) valuation risk from economic projects, 2) an uncovered dividend, 3) expected equity issuance at some point’, and believes a fair value would be 164p, a 7% premium to NAV.
