When Rishi Sunak used last month’s spending review to lay out plans for a new infrastructure bank, the sceptics might have been tempted to see it as the latest government initiative likely to get snared in the weeds.
Successive administrations have made bold claims to pour billions into road, rail, prison and education improvement programmes, only for projects to become mired in delays and wrangles over construction risks.
Could it be different this time? The stock market seemed to have high hopes that the chancellor’s promise might yield results, sending shares in companies involved in infrastructure higher on the day the review was published.
Among them was BBGI Global Infrastructure, which backs just these sorts of projects and could get involved, possibly to the profit of its investors.
BBGI is a £1.2 billion investment fund that mainly backs initiatives that are joint ventures between governments and the private sector. Based in Luxembourg, it has been listed on the stock market since 2011, when it raised £212 million, and is a constituent of the FTSE 250 index.
The company tends to invest in projects that are up and running, and so generating cashflows, in areas from roads and schools to healthcare facilities and police stations. It has 49 holdings and does not take on risks involved at the construction stage.
Geographically, the vehicle is fairly widely spread and about 30 per cent of its assets are in the UK, where its investments include Gloucestershire Royal Hospital, Avon & Somerset police headquarters and schools in Kent. It is not involved in the fashionable area of renewable energy, but the attractions of the business model are broadly similar: stable cashflows that underpin a reasonably generous yield, not unlike a bond investment. Some investors might also feel that, in refits of hospitals and schools, they are backing something socially useful.
To all intents and purposes the pandemic has left this vehicle untouched, during which time the cashflows of its investments have continued as usual. The company, which manages its own investments, spent just under £18 million during the first half of the year on three acquisitions, including stakes in Highway 104 in Canada and the N18 motorway in the Netherlands.
Unfortunately, BBGI doesn’t make it easy for shareholders to assess its performance over time. Unlike rival investment companies, it does not produce monthly factsheets giving investors a snapshot.
The half-year report shows that the net value of its assets rose by 0.3 per cent to £860.8 million over the six months to the end of June. That’s far better than the FTSE All-Share, its benchmark, which fell by 19.4 per cent over the six months, but it would be helpful if the fund spelt this out more clearly.
To its credit, there is a chart in the half-year report that shows that BBGI has consistently beaten the FTSE All-share based on total shareholder return over the past five years. Its track record over the preceding years is more patchy.
In many ways, this is a very strong defensive investment. Because its returns are locked in, with an average project life of just over 20 years, it is shielded from short-term fluctuations in local economies. It should also benefit from government initiatives, including in Britain, to improve networks such as transport.
The shares, up 1½p or 0.8 per cent at 176½p yesterday, trade at a substantial premium of about 28 per cent to the underlying net asset value, which dims the appeal.
With a prospective yield of 4.1 per cent, though, this fund is a perfectly respectable hold.
ADVICE Hold
WHY Stable and reliable earnings and dividend from attractive portfolio, but the shares are a bit pricey
Genus
For Genus, it’s not so much coronavirus that’s been the problem as African swine fever. Just over two years ago, a rapid outbreak of the disease in China led to a mass culling of pigs and a ban on their transportation.
Genus is a supplier of weaners to the Chinese market, which produces and consumes close to half the world’s pork, and it meant an abrupt and sharp fall in demand and huge interruptions to its local supply chain. Now that China is emerging from swine fever, however, business for Genus is booming again, so much so that last month the company upgraded its profit forecasts for the year ahead.
Genus is a world leader in the provision of fertilisation treatments for pigs and cows. Based in Hampshire, it was created in 1933 as a division of the Milk Marketing Board. It has a research and development division working on a cure for an epidemic virus in pigs as well as other diseases. It operates in more than 70 countries with annual revenues of more than £550 million.
The beginning of the end of African swine fever in China has benefited Genus in two ways. The market resumed but it has also grown substantially as farmers rebuild their depleted stocks. The disease has sped up industrialisation in China’s pig industry, as smaller operators merge and the size and efficiency of orders increases.
That led to a 13 per cent rise in revenues to £551.4 million in the 12 months to the end of June, a trend that carried through the next four months and prompted the revised target on profit, which was already 16 per cent higher at £71 million for the recent financial year.
Genus has also been trading strongly in the bull semen market, especially with Sexcel, which enables farmers to choose genders and helped the bovine genetics division to increase revenues by 9 per cent last year to £32.5 million.
The shares, tipped in April 2019 at £22.02, have had a strong run. Though off 12 p or 0.3 per cent at£39.80 yesterday, they have risen overall by 80 per cent since then. Changing hands for 41 times Numis’s forecast earnings for a yield of 0.8 per cent, they are expensive but have tended not to disappoint.
ADVICE Hold
WHY Bullish valuation but the prospects are strong
