HICL Infrastructure(LSE: HICL), which released its annual results today, is a company I rate highly. From its IPO in March 2006 to its latest year-end of 31 March, it's delivered a total shareholder return of 9.3% per annum from dividends paid and growth in net asset value (NAV) per share. I see great value in the FTSE 250 firm's shares at their current price.
From premium to discount
HICL ended the year with investments in 116 infrastructure projects, up from 114 at the previous year-end. Investments in public private partnership (PPP) projects -- for example, schools and hospitals -- represented 74% of the portfolio by value. Demand-based assets (e.g. toll roads) accounted for 18% and regulated assets (e.g. water) for 8%. Geographical diversification was of the order of: UK (80%), Eurozone (10%), North America (7%) and Australia (3%).
The shares are trading at 144p, a tad lower on the day, and considerably lower than their all-time high of 184p, achieved less than two years ago. Over that period, NAV per share has increased from 142.2p to 149.6p and the annual dividend from 7.43p to 7.85p. As such, the shares have moved from a 29% premium to NAV to a 4% discount and the dividend yield has increased from 4% to 5.5%.
I believe market sentiment has become overly pessimistic about the PPP sector, notably as a result of the collapse of Carillion. As far as HICL is concerned, despite Carillion being the group's largest facilities management counterparty (10 projects and 14% of the portfolio by value), the hit as at 31 March was a reduction in NAV representing just 2%. This shows the value of HICL's diversification and the company and its co-investors appear to be well advanced in transitioning the 10 projects to new long-term facilities management subcontractors.
HICL notes that in the current environment, the outlook for private investment in new UK infrastructure projects is muted. However, longer term, I believe the value of private capital in UK infrastructure investment will prevail. And with HICL continuing to see opportunities in Europe and North America, I rate the stock a 'buy' at its current depressed price.
Strong recovery in prospect
Insurer Lancashire(LSE: LRE) is another FTSE 250 firm that I hold in high regard but that has also been out of favour with investors recently. It's current share price of 614p compares with a 52-week high of 760p. The company has a history of paying out almost all of its profits in dividends to shareholders and despite the recent weakness of the shares, it's delivered a 10-year total shareholder return of over 15% per annum.
Lancashire was hit by heavy catastrophe losses from hurricanes and wildfires last year. However, good insurers take such occasional but inevitable setbacks in their stride. Lancashire has done so, and first-quarter results released earlier this month show the company is taking full advantage of a more favourable underwriting environment.
City analysts are forecasting earnings per share this year of $0.63 (47.4p at current exchange rates) and a dividend of $0.45 (33.8p). At the current share price, the price-to-earnings ratio of 13 and dividend yield of 5.5% represent great value in my book. As with HICL, Lancashire is a FTSE 250 stock I'd happily buy today alongside some select FTSE 100 dividend champions.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.