The case for listed infrastructure

Jim Wright

Premier Miton Global Infrastructure Income Fund

Jim Wright, manager of the Premier Miton Global Infrastructure Income Fund, makes the case for listed infrastructure investing, citing 5 key themes that he believes will help to drive the sector forward.

North American energy infrastructure – the game has changed

It is no exaggeration to say that Russia’s invasion of Ukraine in February 2022 has completely changed the energy landscape in Europe, and in addition, has profound implications on the source and supply of energy globally.

In March 2022, the European Commission launched the REPowerEU plan, aimed at reducing the EU’s reliance on Russian gas, which is currently 40% of overall consumption, by two-thirds by the end of 2022 and to zero “well before 2030”. The US government has made significant commitments for the supply of US liquified natural gas (LNG) to Europe, with President Biden announcing additional volumes in 2022 and beyond.

This increase in US LNG export demand, allied to a renewed focus on the security of supply of domestic oil and gas in the USA and Canada, has potentially very positive implications for investment in energy infrastructure. It provides a tailwind both for the utilisation of existing assets and for investment in new projects for the listed energy infrastructure companies. We expect to see significant growth from investments in LNG export facilities, pipeline networks and decarbonisation solutions such as carbon capture and storage. In turn this could drive growth in revenues, earnings, and dividends for companies such as Enbridge, Williams, and Sempra Energy.

 

Resurgent renewables

Another major route which the EU Commission has identified to reduce reliance on Russian gas is the acceleration in renewable energy investment across Europe. At the launch of REPowerEU, the Commission President, Ursula von der Leyen, clearly stated the need to accelerate the buildout of renewables and hydrogen infrastructure alongside improved energy efficiency, as well as diversifying gas supplies. Policy moves to expedite the planning process and support mechanisms for renewables are likely to be deployed to meet the policy goal and will be necessary to drive a meaningful change in the trajectory of renewable development.

Equity markets have been somewhat sceptical regarding renewable energy developers in recent months based on concerns over supply chain issues, higher interest rates and the weight of money chasing new projects, all of which were perceived as a negative influence on returns on investment. We see the increased demand for renewables, as well as the higher “clearing price” set by gas-fired electricity generation, as offsetting these negatives, and we remain enthusiastic over the long-term prospects of stocks such as RWE, SSE and Orsted.

 

Infrastructure and inflation

One of the defining characteristics of infrastructure as an asset class is the large proportion of revenues which have some linkage to inflation. Many regulated assets, particularly in the utility sector, have profits which have direct linkage to local inflation rates as part of their returns formula. In addition, there are other infrastructure assets, such as pipelines and telecommunication towers, where users commit to long-term contracts with built-in annual escalators, again frequently linked to local inflation rates. And even in areas where contracts tend to be more short-term in nature, such as US rail freight, the asset owners often have the pricing power to pass through cost increases.

We believe that, in a period of sustained and rising inflationary pressures, infrastructure equities are extremely well-placed to mitigate the negative impacts of inflation on investor returns.

 

Growing private equity interest in listed renewables

The listed infrastructure sector has always attracted interest from buyers such as pension, sovereign wealth and private equity funds looking to invest in stable, long duration assets. We believe that this has accelerated more recently, as the attraction of “real asset” investments has increased, particularly as an alternative to bonds. We have noted an increasing number of transactions across regulated utilities, renewables, transport infrastructure and telecom towers and fibre networks in recent months, with private buyers acquiring assets from listed companies or making offers for the entire company, at considerable premium valuations compared with the prior stock price.

 

Good and growing income

Many infrastructure assets offer regulated income or long-term contracted revenues, providing good visibility and stability for investors seeking a regular flow of dividends. Allied to this, the listed infrastructure sector by nature provides exposure to growth themes such as the energy transition and the demand for high-speed data networks. Investment in these growth areas and increased returns on existing assets from higher utilisation and from inflation-linkage can combine to drive growth in dividends from the sector, increasing the attractiveness of the proposition for investors.

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Risks

The value of investments may fluctuate which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.

Reference to any particular stock does not constitute a recommendation to buy or sell the stock

Higher inflation can lead to some investments falling in value, particularly those with a fixed level of interest, for example government bonds and corporate bonds.

Where investments in a fund are denominated in currencies other than sterling (for example, if a fund holds assets priced in euros), its value will be affected by changes in the relevant exchange rate. Certain other investments, such as the shares in companies with profits from other countries, will also be effected.

Investments are often in large-scale projects whose profitability can be affected by supply problems or rising prices for raw materials or natural resources. Changes in the wider economy and government regulation can also have a significant influence.

Forecasts are not reliable indicators of future returns.

IMPORTANT INFORMATION:

For Investment Professionals only. No other persons should rely on any information contained in this document.

Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Reference to any particular stock or investment does not constitute a recommendation to buy or sell the stock / investment.

All data is sourced to Premier Miton unless otherwise stated. Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

For your protection, calls may be monitored and recorded for training and quality assurance purposes.

Financial Promotion issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227.  Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

 

006460/280422

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This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

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Disclaimer

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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