In our view 3i Infrastructure (3IN) is a unique vehicle in the infrastructure sector which gives investors access to a diversified portfolio of private sector infrastructure businesses positioned to benefit from four megatrends.
These include the energy transition, digitalisation, demographic change and renewing vital infrastructure. The group has decades of experience operating in the UK and European private markets which allows it to identify businesses with good growth opportunities.
The company actively engages with management teams to pursue accretive growth by expanding into adjacent markets or geographies, making add-on acquisitions or establishing appropriate capital structures.
The portfolio has strong growth and cash flow characteristics which, combined with capital investment, results in a compounding growth dynamic which delivers attractive returns to shareholders.
This has allowed the company to create a top quartile track record with NAV (net asset value) per share plus dividends growing at an annualised rate of 18% a year since 2015, handsomely outperforming the peer group average of 10% a year.
Headwinds from rising interest rates appear to be abating and the shares trade at a 15% discount to NAV, despite recent divestments being executed at a premium to NAV. We believe this represents a great buying opportunity to get on board a high quality, defensive growth company.
A flavour of 3i Infrastructure
To give some insight into the types of businesses the company invests in and their growth prospects, we highlight the following two companies.
ESVAGT
In the energy transition space, the company owns Danish company ESVAGT which is the global leader in the fast-growing segment of SOVs (service operation vehicles) for the offshore wind farm industry.
It is also a leading provider of emergency rescue and response vessels to the offshore energy industry in and around the North Sea and Barents Sea.
SOVs are purpose-built, high-performance vessels, providing efficient transport of maintenance technicians to wind turbines and other offshore wind equipment, under long term contracts.
The bespoke nature of the vessels and requirement for experienced crews with a proven safety record provides high barriers to entry.
Demand for SOVs is expected to grow strongly with several tenders anticipated in the next 12-months in the rapidly expanding US wind market.
TCR
Brussels-based TCR is Europe’s largest independent asset manager of airport GSE (ground support equipment). It operates at more than 230 airports across more than 20 countries.
The diversity of its operations and customer base means revenues are not materially reliant on one client or geography.
Reliable GSE is critical to the efficient running of airports and TCR helps deliver this service alongside access to scarce airside repair workshops, providing high barriers to entry.
Fleet optimisation is also important in the context of enabling decarbonisation of airport ground operations.
The business is growing strongly and in February 2024 it acquired KLM Royal Dutch Airline’s ground equipment services subsidiary at Schiphol airport.
TCR has secured multiple commercial contract wins including a centralised all-electric Ground Support Equipment pooling contract at JFK International Airport New Terminal One.
To support growth TCR completed a €450 million refinancing, comprising €250 million of new term debt and a refreshed revolving credit facility of €200 million.
This enabled a €73 million distribution to 3iN, with the balance available for reinvestment by TCR.
WHAT IS IN THE PORTFOLIO?
The roughly £4 billion portfolio is invested a across 12 assets which generated £273 million of total income and non-income cash in 2024, including distributions from refinancing activity.
The strategy is to invest in businesses with good asset backing, strong market positions and barriers to entry. The company is looking for operational levers to achieve attractive returns through active management.
On 31 March 3i Infrastructure released a brief full year trading update to the end of March, saying it expected to report another period of good performance.
Bernardo Sottomayor, managing partner and head of European infrastructure, 3i Investments, commented: ‘We continue to see earnings momentum in the portfolio, driven by our strategic focus on prioritising growth investments in our existing portfolio companies.’
The company said it is on track to deliver its dividend target of 12.65p per share, up 6.3% on 2024, which is expected to be covered 2.5 times by earnings per share.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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