RCS - BBGI Global Infrast. - Results analysis from Kepler Trust Intelligence

BBGI Global Infrastructure SAAnnouncement

06/09/2023 16:15

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RNS Number : 6146L  BBGI Global Infrastructure S.A.  06 September 2023

BBGI Global Infrastructure (BBGI)

06/09/2023

Results analysis from Kepler Trust Intelligence

NAV total returns for BBGI fell modestly by 1.4% in the first half of 2023.
This was mainly due to foreign exchange movements and a change in the discount
rate, itself largely caused by interest rate hikes in the UK impacting UK
assets, which are 33% of BBGI's portfolio. Despite this small decline, the
trust has delivered a strong track record of 8.8% annualised NAV total returns
since IPO in 2011. At the end of the period, the shares traded on a 6.6%
discount to NAV.

The negative valuation effects on the trust's NAV were partly mitigated by
increased deposit and inflation rates. BBGI's proportional share of cash
holdings in portfolio companies stood at approximately £385m as at
30/06/2023. Interest paid on these holdings has risen substantially over the
past two years and averaged approximately 4.5% during the period. Changes in
short and long-term deposit rate assumptions resulted in an increase to NAV of
approximately 1.2%.

BBGI's discount rate increased by 0.3% to 7.2% during the period. The weighted
average risk-free rate of the BBGI portfolio stayed flat during the period at
3.8%. As such, the trust's discount rate includes a 3.4% risk premium,
arguably a conservative figure given the resilient availability-style assets
the trust invests in and their high-quality inflation linkage.

BBGI Chair Sarah Whitney said: "As an internally-managed investment company,
our leadership team's alignment of interest with our shareholders is clear. In
this period of economic volatility, we will continue to be disciplined in our
approach to capital allocation and will only consider transactions that are
accretive to our shareholders. BBGI has not been immune to the uncertain
market and economic backdrop that has impacted investor sentiment on almost
all UK listed investment companies."

Kepler View

BBGI Global Infrastructure (BBGI) provides investors with access to a
portfolio comprised solely of availability-style assets, backed by AAA/AA
government and government-backed counterparties. These are public
infrastructure assets that generate revenue as long as they are available for
use, meaning they are not subject to the price elasticity of demand or the
regulatory risks that demand and regulatory-based assets can be susceptible
to. The contracts underpinning these investments have strong inflation
linkage, which acts in a mechanical way, as cash flows increase in line with a
relevant price index.

Despite seeing a small fall in its NAV, performance in the first half of this
year in many ways demonstrated how resilient BBGI's portfolio can be. The
large majority of the small NAV decline was attributable to changes in FX
rates that were not fully covered by the trust's hedging strategy, and a 50bps
increase in UK interest rates. With the UK currently representing about a
third of the BBGI portfolio, this fed into a higher discount rate for the
portfolio as a whole, which rose from 6.9% to 7.2%  in the first half of the
year. As much as investors may like them to, it is hard to see what BBGI could
have done to offset these macroeconomic performance drivers.

With a weighted average risk-free rate of 3.8% across the BBGI portfolio, the
trust's current discount rate means there is an implied risk premium of 3.4%.
With the trust trading at an 11.6% discount to NAV as at 31/08/2023 , we think
the trust offers a compelling mix of downside protection and upside potential.
The trust's high quality inflation linkage and AA/AAA counterparties offer
strong protection against further volatility and unexpected inflation spikes.
At the same time, if we are entering a more benign environment and have
reached the end of the rate hiking cycle, the trust's high dividend yield may
start to look more attractive again, potentially resulting in a tightening of
the discount.

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