Infratil Limited (NZSE: IFT) is an infrastructure investment company based out of New Zealand with operations in Australia, USA, and Europe along with New Zealand. IFT’s investments are in energy, transport, and social infrastructure sectors. Infratil’s portfolio companies with ownership share as of FY2020 are listed below:
- Trustpower (51%)
- Tilt Renewables (66%)
- Longroad (41%)
- Galileo Green Energy GmbH (40%)
- Wellington Airport (66%)
Data & Connectivity
- CDC Data Centres (48%)
- Vodafone New Zealand (50%)
Social Infrastructure & Real Estate
- Retire Australia (50%)
- NZ Bus (100%)
- Perth Energy (80%)
- ANU Student Accommodation (50%)
- Snapper (100%)
Infratil’s business model is straightforward. They invest in companies with a growth potential with a long-term outlook and they strive to provide above average shareholder returns. Hence, the revenues of Infratil is dependent on the performance of its underlying assets in its portfolio.
Earlier this year, Infratil was trading at record highs. Post the March downturn, the stock has recovered most of its losses and is now trading 13% off its 52-week high. The FY followed by Infratil ends 31st March. Hence, the extent of the pandemic’s impact to its financials is still unknown. Energy and transport particularly have been disrupted due to the decrease in demand since the pandemic. Telecommunication sector has seen a decline in earnings due to the decrease in roaming revenue.
The firm has invested close to $2 Billion in FY2020, with the acquisition of Vodafone NZ and $920m of investment undertaken within Infratil’s business.
The stock has been riding on the back of recent equity raises. Infratil announced a NZ$300 million that consisted of a NZ$250million fully underwritten institutional placement, and NZ$50 million non-underwritten Share Purchase Plan. Most recently, Infratil announced the successful completion of both these equity raises.
The demand in all the industries Infratil currently operates in may have declined due to changes in consumer behaviour and preferences as the world deals with Covid19. However, in a post pandemic world, we expect the demand to rebound to previous levels and grow at a steady pace once again.
These industries are not categorized with high growth either. What they do have is steady growth rates due to the essential nature of their services.
Covid19 has impacted all sectors that are associated with high debt levels and high capital requirements. We believe the impact of Covid19 is the highest in transportation and social infrastructure & real estate sectors among Infratil’s portfolio as these firms will suffer from extended travel restrictions.
Infratil reported NZ$1.2 billion revenue in FY2020 – 4% decline compared to its previous year. However, due to gains from the sale of some of its investments and lesser income tax expenses, the firm ended the year with net income of NZ$ 241 million – a sharp increase from FY2019 when it reported a NZ$ 19 million loss.
Infratil draws most of its revenues from Trustpower and Tilt Renewables with these two accounting for 52% and 35.5%, respectively. NZ Bus and Perth Energy are money losing businesses currently, and Wellington International Airport only accounts for 7% of the total revenue of the firm. From geographical segmentation, Infratil draws 90% of its revenues from New Zealand and Australia.
The below chart paints a picture of a firm with stable margins due to the diversity in its portfolio. The dips in revenues and operating expenses were due to a divestment in assets. The operating income graph does raise concerns over a declining trend over the last 2 years, and uncertainty over FY2021 performance due to impacts of Covid19 does add an element of risk.
In light of the pandemic and uncertainty, the cash position of the firm has been increased to NZ$730 million. The current assets vs current liabilities metric that measures the short-term financial health of the firm is at 2.2x – meaning the firm is well positioned to meet any short-term debt obligations. The financial health over the long-term is measured by looking at total assets vs total liabilities. This tells us how strong the firm’s balance sheet is but does not comment on performance of those assets. Over the long term, the assets exceed liabilities by 1.7x – a healthy metric that reduces the default risk of the firm.
The graph above complements the firm’s long-term strategies that are in place with respect to their investments. With over NZ$4 billion in assets, the below table tells us where investments have been made in FY2020.
Source: Infratil Annual Report 2020
The firm’s current dividend yield is 3.47% and its dividend payout was 17 cents per share in FY2020.
Infratil has been an active investor in the market – investing for growth. The firm’s performances in the recent annual report was a cause for concern and the forecast for FY2021 is sure to be impacted from the pandemic situation. The balance sheet of the firm is rock solid and so is its financial health. Hence, we give Infratil a “Hold” recommendation at this price.