In this publication, Hardman & Co’s focus is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs), as we update our publication of January 2022 and address two key issues of recent months – rising inflation and surging power prices.
The stocks analysed are all members of the Association of Investment Companies (AIC). As a group, their combined market capitalisation is currently £31.6bn. The most valuable IICs are HICL Infrastructure and INPP – both are currently capitalised at over £3bn each. The largest REIFs are Greencoat UK Wind and TRIG, which are capitalised at £3.6bn and £3.3bn, respectively.
Sharply rising inflation, and not just in the UK, remains a real concern for many investors. In fact, IICs and REIFs, to varying extents, derive material benefits from higher inflation, providing – in an admittedly unlikely scenario – that it is not accompanied, in time, by higher interest rates.
The impact for the leading REIFs of soaring gas prices – the spot price rose from 50p per therm in April 2021 to over 450p per therm just eight months later – is wide-ranging, and the pronounced upward impact on their long-term valuations is very relevant for investors. This process has already become apparent, since long-term power price assumptions are a key factor, along with the discount rate, in determining the NAVs of most REIFs. Foresight Solar’s 27.4% increase and JLEN’s 25.1% increase in their NAVs between March 2021 and March 2022 are clear examples of this trend.Download the full report
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