Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BBGI Global Infrastructure SA (LSE:BBGI, Financial) delivered a 2.4% NAV total return during the period.
- The company offers an attractive dividend yield of 6.2%, with a 6% dividend growth last year and expected further growth.
- Strong inflation linkage across the portfolio at 0.5%, with high-quality contracted revenues.
- The portfolio is globally diversified, focusing on AA and AAA-rated countries, providing a stable operating environment.
- BBGI Global Infrastructure SA (LSE:BBGI) has a strong approach to ESG, being an Article 8 firm under the EU Sustainable Finance Disclosure Regulations.
Negative Points
- NAV per share experienced a modest decline of 0.3%, moving from 147.8p to 147.4p per share.
- Foreign exchange acted as a headwind during the period, resulting in a 1p per share reduction in the NAV.
- The company has not made any new acquisitions during the period, despite evaluating over 50 opportunities.
- There is a potential concern about the future dividend cover, which might reduce from the current 1.47 times to around 1.1 to 1.2 times.
- The company holds GBP20 million in cash, which is not beneficial long-term and needs to be deployed effectively.
Q & A Highlights
Q: Can you talk about the transaction volumes you're seeing in the wider market? Do you think they've normalized and are they closing, and how fast are they closing?
A: Yes, we've seen transaction volumes return to more traditional levels. There was a period when interest rates were backing up, and during that time, volumes diminished as people sought direction. Now, we're seeing lots of activity with willing buyers and sellers. We've outlined some market-observed transactions on pages 58 and 59, showing sufficient levels to support valuations. We're comfortable that the NAV we're publishing is sensible and reflective of market conditions. β Duncan Ball, CEO
Q: What's the sort of free cash flow you're generating at the moment? Do you see yourself making incremental investments to deploy that?
A: The dividend is well covered, implying excess cash flow. Our first priority was to repay the RCF, which we've done, and now we have GBP20 million cash on the balance sheet. We will monitor and prudently deploy this cash, possibly considering share buybacks if trading at a discount or accretive investments. We looked at over 50 transactions in the period but remained disciplined. β Duncan Ball, CEO
Q: On the cash held in the concessions balance sheets, are you able to lock in the higher rates in that or are they just variable rates?
A: It depends. Some cash, like in a debt service reserve account, might be put on a 6-month deposit, while others might be shorter. We can't buy long-duration bonds with it, but we have an active treasury management process to get the highest rates possible, typically short duration less than a year. β Duncan Ball, CEO
Q: You've got a couple of assets in hand-back. What would you say the tone of the discussion is like and how clear are the contract terms?
A: We're very comfortable with our exposure on hand-back. Less than 1% of our portfolio is subject to hand-back in the next 5 years. We have good relationships with our clients, making hand-backs less onerous. For social infrastructure, liabilities are typically passed down to subcontractors. For road assets, hand-back standards are less onerous, usually involving repaving, which is already budgeted. β Duncan Ball, CEO
Q: How much would interest rates need to fall for BBGI to start accounting for this in a lower discount rate?
A: We use a comparable transaction approach to valuation, complemented by a capital asset pricing model. We adjust our discount rate based on market-observed transactions. If we see changes in the market evidenced by transactions, whether an increase or decrease in discount rates, we'll adjust accordingly. β Duncan Ball, CEO
Q: How are you thinking about the GBP20 million net cash position? Do you expect to deploy it into assets or share buybacks over the next 6-12 months?
A: We manage the portfolio conservatively and are comfortable considering share buybacks if our shares are trading at a discount. We also look at potential investments. Our goal is not to hold cash long-term but to deploy it prudently. β Duncan Ball, CEO
Q: What are you expecting in terms of the prospect of new public-private partnership-like deals from the labor government?
A: Governments facing deficits will likely look to the private sector for infrastructure initiatives. The new UK government has discussed bringing back models involving private capital, such as the lower Thames Crossing. However, our business isn't dependent on this; we see opportunities in various geographies and will continue to grow in a disciplined manner. β Duncan Ball, CEO
Q: Could you provide an update on the SNC-Lavalin pipeline and the timing of the next asset within the pipeline to commence operations?
A: Many assets in the SNC-Lavalin pipeline were delayed due to COVID. While we are optimistic that these assets may come to us, there's nothing imminent. These are options, not obligations, and we will evaluate them as they come. β Duncan Ball, CEO
Q: What are the hurdles for a new acquisition to be considered? Are there any regions or sectors BBGI could be active in over the next 12 months?
A: We focus on portfolio construction, looking for long-term cash flows from core infrastructure assets with inflation linkage and security. We consider share buybacks as an alternative use of capital. We remain disciplined and will consider assets that are value accretive. β Duncan Ball, CEO
Q: Has there been any adjustment to prior provisions for the Canadian Tax Legislation?
A: No, we had already taken the full provision for EIFL in our December valuation. The legislation was passed in June, but we had accounted for it earlier. β Michael Denny, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
