Transcript
Speaker: I'm Martin King, Analyst at Edison Investment Research and I'm joined today by Jamie Hussain from IMPP, International Public Partnerships. Jamie is the the lead portfolio manager there and we're going to talk about the company's strategy, its performance and the outlook.
Speaker: Jamie, welcome. Thank you, Martin. Jamie, can we kick off with you just giving ah an overview of what IMPP is, how it differs from other listed infrastructure companies and what it aims to deliver for investors.
Speaker: After we've done that, we can come and talk about what you don't do, but let's talk about what you do do first. Perfect. So IMPP looks to deliver to investors very resilient and predictable stream of income alongside capital growth.
Speaker: And the way we achieve that is by investing in essential infrastructure, the kind of infrastructure that people rely on every single day. So these include things like social infrastructure projects like schools, hospitals, government buildings.
Speaker: They include things like transport businesses that that move people around. And they they also include things like energy networks that keep the economy powered and the lights on.
Speaker: Now these ah infrastructure assets have a lot of attractive features. They are naturally monopolistic, they have high barriers to entry, um and and therefore they they are essential whatever might be happening in the world.
Speaker: But what's particularly attractive about them is the way in which they generate their revenue. Most of the investments that INPP has made into infrastructure projects and companies have or derive their revenue through long-term government-backed contracts or regulation.
Speaker: And these long-term contracts don't take a demand risk, they don't take price risk or us or usage risk. So they're very resilient and effectively on an availability basis. As long as that infrastructure is available, we will get paid.
Speaker: What's more is that these infrastructure contracts typically have inflation linkage built in. So there's a formula that allows our revenues to step up every year in line with an inflation index.
Speaker: And what we're then left with is ah therefore a very resilient portfolio of low-risk assets that delivers long-term inflation-linked returns.
Speaker: So you've got a very specific investment proposition ah What is it that you don't do that some other listed infrastructure companies do? But also coming back to your own proposition, is that likely to change over time?
Speaker: So what we what we don't do is invest in infrastructure that has material levels of demand risk or merchant risk. ah we We very much focus at the lower risk end of the infrastructure definition. and And therefore, we don't have to make forecasts in our, our valuation does not include forecasts around demand, around price, around usage.
Speaker: And so it really does link back to that, ensuring that the portfolio invests in that resilient, predictable cash flows from infrastructure investments.
Speaker: And I think therefore um that's probably best highlighted through our track record, ah which I think compares very favourably to perhaps others.
Speaker: We've grown our dividend every single year for the last 20 years, since we launched in 2006. ah We've grown that dividend by at least 2.5% per annum and sometimes more.
Speaker: And that dividend has been paid out on a fully cash covered basis. Typically cash coverage is 1.1 times. So you can see there um the the resilience that we're able to deliver um through dividends to our investors.
Speaker: And if you take a moment to think about what we've experienced in those sort of two decades, we've seen the global financial crisis, we've seen Brexit, we've seen a global pandemic, the the the energy cost shock from ah ah the war in Ukraine, an entire interest rate cycle and And I've lost track of how many prime ministers, but but throughout that time we've been able to deliver that dividend. And I think that that hopefully highlights the the security of the kind of infrastructure assets we invest in.
Speaker: And what's more is that the portfolio that we've currently invested in and the long-term contracts that I talked about earlier mean that we're able to project our future dividends out for the next 25 or more years, again on a fully cash covered basis and growing at at least 2.5% per annum.
Speaker: So i think that hopefully resonates well with investors um and therefore to your question around ah portfolio composition in the future,
Speaker: Whilst we may look to invest, and we are very active on the investment side, um whilst we might may look to invest in perhaps um ah new geographies, new sub-investment asset classes, what we'll always do though is remain um true to that that core risk profile of ensuring those consistent cash flows, but with the opportunity as well with some capital growth alongside that.
Speaker: So as an investor, it's all about robust and and you dependable income growth with a potential for some capital growth, but not dependent on capital growth, which can be positive or negative.
Speaker: absolutely Absolutely right. yeah So Jim, you've talked about the the visibility of future income growth and the reliability of future income growth. Can you talk about the asset management process, what you do to maximise returns? And also, we didn't say, you are from Amber Infrastructure, which is the external investment advisor to IMPP. Can you talk about role Amber's role in all of that? Absolutely. um And I think this is a ah key part of the the story to IMPP, so great great to talk about that.
Speaker: um First off on the returns side and the asset management side, obviously incredibly important. ah What INPP has been doing over the last few years is running a capital recycling programme where we've been divesting or realising some of our more mature, lower returning assets.
Speaker: but then using that capital to reinvest into newer, um higher returning investment opportunities that we see, but crucially those with very similar risk profiles to the the overall portfolio.
Speaker: um To put that into numbers, since 2023, we've over million pounds of assets. that's about fourteen percent of the portfolio And we've, and I should say that those realisations have been in line with the net asset value we publish, or indeed in some cases at a premium. So I think that also helps support the net asset value that we do publish.
Speaker: But what we've then been doing is using that capital to reinvest into some of the newer opportunities we're seeing. um And the opportunities or sorry the investments we have been divesting have typically got a or a weighted average return of 9% or below. And the commitments we've been making since 2023 all have a weighted average return above 11%.
Speaker: So you can see how we're able to deliver accretive returns to shareholders through that active asset management of recycling capital. And I think this then highlights perhaps Amber's ah part in this story.
Speaker: um Amber ah is an incredibly important way for INPP to source, originate and and transact on new infrastructure opportunities in the primary market. So um this is where infrastructure assets don't actually exist at the moment, um but AMBER, the investment advisor, is able to structure those investments and then bring INPP an investable opportunity when it's ready. And the example I would cite with that is Sizewell C, INPP's latest or newest investment. Sizewell C is a new nuclear power plant that's being built on the coast of Suffolk.
Speaker: It's a 3.2 gigawatt plant. um But whilst it is a construction of a nuclear power plant, crucially the way in which we're investing in, which is through the regulated asset-based model,
Speaker: or RAB, makes it very much an infrastructure investment and therefore a financial instrument type investment. We are not, for example, taking risk beyond a certain threshold on construction costs, or at least they are heavily mitigated through the regulation and through a government support package.
Speaker: And equally we're not taking generation risk. um What we receive is an allowed return on the capital we've invested and that return we see as being particularly attractive given the low risk nature of the investment.
Speaker: The return level on size we'll see is expected to be in the low teens out to the early 2040s when early operations are expected to begin.
Speaker: And I think that's a great example of Amber's ability to originate attractive investment opportunities for IMPP that deliver those or have those higher projected returns, but still sticking very much to the infrastructure low risk profile that that has served the Trust so well.
Speaker: I know that AMBA is a very large and specialist operator in in infrastructure. Could you just say a little bit about its reach and also given that position, you know how you would look at the long-term prospects for infrastructure and also the role that you think infrastructure might have in ah an investor portfolio?
Speaker: So AMBER Infrastructure has about 180 employees, and we are spread across all the geographic regions that IMP has investments in.
Speaker: So that naturally includes the UK, but also across areas of Europe, Australia, New Zealand and the US. And that means we have a local footprint and an on the ground presence to be able to source new infrastructure opportunities with relationships built with local and central government counterparties.
Speaker: And we see the need for infrastructure in all those regions, whilst at the same time we also see a lot of those governments having the kind of fiscal constraints and the requirement to bring private sector capital like INPP in.
Speaker: We're also seeing a number of the key mega trends that is leaning into further infrastructure investment. Things like decarbonisation, which is requiring substantial amounts of capital to be invested in the electrification of our of ourg grids as we move towards net zero and indeed energy security, which is becoming increasingly important.
Speaker: In addition, there's things like digitisation. An immense amount of investment is needed in the infrastructure there. Things like data centres, but beyond that there's the general communications and fibre networks that that support that.
Speaker: And then there's the demographic side or mega trend. What we're seeing is things like an aging population that requires ah ah the infrastructure to meet their requirements in in health and mobility and indeed changing habits of of people through further urbanization and again that leans into the need for more infrastructure on the mobility and social infrastructure side as well.
Speaker: So we see an an immense amount of opportunity there um and you know highlighted perhaps best through things like the UK's um ah government's 10-year infrastructure strategy plan which explicitly talks about attracting private sector capital like INPP to support infrastructure projects.
Speaker: And I think therefore how this can fit into an investor's portfolio is very much that resilient cash flows that I talked about, the income that is generated, we pay a dividend quarterly, and the projected dividend that I talked about, alongside some of the capital growth in things like the construction assets, like SizeWell c um and therefore all encompassed in a very low risk equity. So we have um the inflation linkage and the growth mean that we are not just like a bond, actually we can generate some some decent returns, but whilst still maintaining a very sensible risk profile, which has allowed us to to demonstrate that through our track record over the last 20 or so years.
Speaker: Thank you very much, Jamie. That messaging has started to get into the the share price over the last year. They've been doing pretty well, closing the discount, which the capital allocation strategy set out to achieve. But they still offer a very attractive yield, I think, and the dividend is growing.
Speaker: So in a period of uncertainty and the risk of higher inflation, that seems quite a an attractive offering. I know you've got plenty of material on the IMP website if people want to find more and of course we've we've also got the the research that people can find on the Edison website.
Speaker: But thanks for joining us. Thank you Martin.
