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John Laing Infrastructure is safe and reliable: what’s not to like?

The Times

Once upon a time there were three creatures called roscos, or rolling stock leasing companies, which under the arrangements put in place at the time of the rail privatisation owned the trains that were leased to the operators. These turned out to be spectacularly good investments, if not so great for the public purse, which may explain why the current crop of big rail projects is being done rather differently.

On the Intercity Express Programme, providing new stock for the West Coast and East Coast main lines, the private company making and maintaining the trains has a long-term contract with the Department for Transport, not the operator. Agility Trains is 70 per cent owned by Hitachi, which builds the trains, and 30 per cent by John Laing.

John Laing has a deal with John Laing Infrastructure Fund, which gets first refusal on any assets the former wants to sell, and the fund has just agreed to pay £42.4 million for a 6 per cent stake in the West Coast project. This is an important deal because it is the fund’s first venture into railways; there is the prospect of the purchase of the rest of the John Laing stake when the project is completed in a couple of years, and of involvement in the East Coast line too.

In addition, there are a couple of similar projects coming up in Denver, Colorado and the Northern Territory, Australia. These are exactly the sort of assets the fund needs, long term — a 27½-year contract in this case — and with a reliable income stream.

When this column last looked at JLIF, there was concern that the supply of such assets in the UK might be drying up. As it happens, the West Coast project is the second to be signed in this country this month, after a road in north Wales. A short 30 per cent of the portfolio, though, is now overseas. The fund still has plenty of debt available but will, as is its practice, come back to investors for fresh funds in due course.

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JLIF is one of those investments that can safely be bought, ideally when the shares are at a low ebb, tucked away for the income and forgotten. As it happens, they are well back from their high point and, off 1¼p at 126½p, offer a 5.4 per cent yield.
MY ADVICE Buy
WHY The dividend yield is attractive, and this is an investment that has a guaranteed income stream stretching out a long way

IP Group
IP is one of those businesses, like Imperial Innovations and Allied Minds in the US, that takes on promising technological innovations at an early stage and takes them on to commercial exploitation. Such high-risk companies have not always been appreciated in these markets; IP specialises in the life sciences and has about 80 holdings in its portfolio.

A number of them have carried out cash raisings, with the company taking part. IP has been busy, too, in recent days. Last week it bought Parkwalk, another developer of intellectual property and a long-time partner, for £20 million, half of it deferred.

This week IP announced the formation of a new venture, spun out of the Wellcome Trust Sanger Institute, to exploit research into the human microbiome, a hot area of medicine that uses the body’s own bacteria to combat a wide range of diseases. There is no way of valuing IP on any normal metric but a positive note from Numis in the wake of the latest deal suggests that the portfolio is worth 124p a share, though this is not the whole picture. The shares, off ½p at 156p, are back from above £2 at the start of the year. Highly speculative, though.
MY ADVICE
Buy
WHY One for the very long term

Qinetiq
Put at its simplest, QinetiQ provides target ranges and Meggitt Target Systems, which it is buying for £57.5 million, provides the things you shoot at on them. Meggitt has been providing such unmanned craft, aerial, naval and to a lesser extent ground targets to QinetiQ’s testing ranges for a decade, and the business has been in the company’s sights, so to speak, even before it went up for sale.

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QinetiQ was spun out of the Ministry of Defence in 2002 and still gets a lot of work there. The two companies collaborate, for example, on the MoD’s combined aerial target service programme. Steve Wadey, chief executive, has identified its test and evaluation side as one of the areas for expansion, along with an intention to grow international sales and lessen the dependence on that MoD work.

The deal, therefore, ticks both of those boxes, because the Meggitt business gets 90 per cent of its work outside the UK, in about 40 countries, and there is a Canadian manufacturing operation. It is a growing area because of the increase in asymmetrical threats; there is a facility, for example, to mimic the sort of fast inshore attack craft used by pirates or terrorists.

The business is being bought for a reasonable nine times earnings, while QinetiQ had £275 million in the bank at the halfway stage at the end of September, so it is no stretch. The shares, having taken an abrupt tumble at the start of the year, have been recovering. Up 11p at 259½p, they still sell on 16 times earnings. Not cheap but the potential is there.
MY ADVICE
Buy
WHY Options for improvement are significant

And finally . . .
Telford Homes has teamed up again with M&G, the fund manager, through its property division to build new homes in an affordable part of east London. This is what Telford does — develop the site and take a profit but not put up any cash. The first project, worth almost £70 million, was in Bow; the latest, for almost £50 million, is in Upton Park and will complete by September 2019. It allows M&G Real Estate a relatively easy way to put funds into the undersupplied British residential rental market.

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