Only Cordiant and Pantheon buck the trend
For the remaining 29 quoted Infrastructure Investment Companies (IICs) and Renewable Energy Infrastructure Funds (REIFs), 2024 was a dire year ‒ as was 2023. NAV discounts widened appreciably, while some REIFs, in particular, really struggled.
During 2024, there were several “Continuation/Discontinuation Votes”, which saw some funds enter Managed Wind Down. Furthermore, there were no major sector fund-raises during the year; instead, share buybacks prevailed. And, there were no sector IPOs ‒ the last was back in 2021.
Nevertheless, most funds avoided nominal dividend cuts, while both Greencoat UK Wind and 3i Infrastructure raised their payments to shareholders substantially.
Undoubtedly, at the smaller end of the sector, real challenges remain, with equity markets seemingly closed to most sector participants.
Clearly, sector investors will be hoping that 2025 brings some good news ‒ on the back of the high yields currently prevailing ‒ and enables the wide NAV discounts to be narrowed.
Executive summary
- This Hardman & Co publication is an update of its February 2024 equivalent, assessing the nine quoted Infrastructure Investment Companies (IICs) and the 20 Renewable Energy Infrastructure Funds (REIFs). In both 2023 and 2024, interest rates sharply reduced sector valuations to produce, in most cases, substantial discounts to NAV, instead of the premiums that had been commonplace just a few years previously.
- As a 29-strong group, its combined market capitalisation is now £21.6bn. During 2024, the sector shed more than 15% of value, while the FTSE 100 rose by almost 6% and the FTSE 250 rose by a similar percentage.
- Between 2022 and 2024 inclusively, no IIC/REIF IPOs were undertaken: in 2021, there were nine such IPOs. For a combined sector that has raised ca.£10.3bn of new funds since 2020, the 2023 and 2024 fundraising levels were paltry – there were no major equity fund-raises in the sector last year.
- Currently, the most valuable IICs are 3i Infrastructure and HICL – capitalised at £2.9bn and £2.4bn, respectively. The equivalents in the REIF sector are Greencoat UK Wind and TRIG, which are capitalised at £2.9bn and £2.1bn, respectively.
- During 2024, there were sector casualties. Asian Energy Impact is now de-listed and moving into voluntary liquidation, while Atrato Onsite Energy was taken over. Some smaller REIFs had a dire 2024, with falls of ca.60% recorded for both Gresham House Energy Storage and HydrogenOne Capital Growth; the latter has experienced two very difficult years. In addition, Digital 9 Infrastructure’s heavy borrowings became unsustainable, and it is now in Managed Wind-Down (MWD).
- Several “Continuation Votes” featured in both 2023 and 2024. The upshot is that Aquila Energy Efficiency, Aquila European Renewables, Digital 9 Infrastructure, Ecofin US Renewables Infrastructure and Triple Point Energy Transition are all in MWD; the latter fund has effectively completed its MWD sale of assets, within just 13 months and – reassuringly – is set to realise “89% of the portfolio carrying value”.
- Despite some initiatives on the merger front, Aquila European Renewables has spurned the approaches of Octopus Renewables Infrastructure. A further possible scenario in 2025 is a merger between two quoted Foresight funds – one of which is the re-named JLEN.
- Most IICs/REIFs have avoided nominal dividend cuts, but dividend increases, generally, have been modest. However, Greencoat UK Wind, which links its dividend payments to RPI movements, has raised its dividend per share by almost 30% since 2022. 3i Infrastructure plans to raise its dividend by 6.3% this year, while – at the other end of the scale – HICL, a leading IIC, now seems set to pay the same dividend of 8.25p per share, for a sixth successive year.
- Underlying prospective dividend yields for the more established IICs and REIFs now lie within ranges of 4.5%-7.5% and 6.5%-9.5%, respectively. Lower dividend cover has become a notable trend, with GCP Infrastructure and HICL Infrastructure being among those preferring to build up their cover by holding their dividend payments on a nominal basis.
- Around 60% of the REIF sector’s £10.0bn valuation is accounted for by wind power generation. Partly due to generous subsidies, the UK wind power sector has expanded: it now exceeds 28GW of capacity, while UK solar capacity is currently more than 13GW. With the recent election of a Labour government, there may be opportunities to build more UK onshore wind farms and more solar sites, such as the Sunnica project, becoming available as planning constraints are eased.
- Until recently, offshore wind power was set to boom, with the government seeking a quintupling of its capacity by 2030. However, the surge in costs, notably of turbines, has seen the “Contracts for Difference” (CfD) strike prices for offshore wind projects almost double in two years.
- By contrast, gas prices, although still volatile, have fallen back markedly from their Ukraine-driven 2022 peaks. However, this market development has adversely affected some REIF valuations since long-term power price assumptions are an integral factor – along with the more important discount rate figure – in determining the NAVs of most REIFs.
- Three Environmental Trusts – Impax Environmental Markets, Jupiter Green and Menhaden Resource Efficiency – are also discussed briefly in this document. Along with the 29 IICs and REIFs, they lie within the Association of Investment Companies (AIC) universe.
