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Watching this one but sector uncertainty (over done to my mind) means I’ll wait for some stability - maybe results will provide that in the individual case here?
I'm tempted by BBGI, as I really like the visibility of its cash flows. But I have difficulty getting past the fact that its inflation linkage is only 0.5. As a recent retiree, I fear inflation!
By the way, don't overlook the disclaimer at the top of the Kepler article: "This is a non-independent marketing communication commissioned by BBGI Global Infrastructure."
Doh. Here’s the rest!
What is particularly significant here is that 55 of the trust’s 56 holdings have fully amortizing fixed rate borrowing costs, with no refinancing obligation. This means that higher rates have had no impact on the borrowing costs for these investments.
The one remaining portfolio company does face a refinancing obligation for a tranche of debt in Q3 of next year. However, the managers have hedged out the risk of a change in base rates for this amount, meaning the risk only pertains to the lender’s margin in excess of the base rate.
BBGI did use its revolving credit facility (RCF) to make two investments in 2022. However, this was expected to have been fully repaid by the close of last year from excess cash BBGI has generated from its portfolio. Assuming that was the case – BBGI’s results are out later this month – it illustrates the trust’s ability to grow organically and the fact it does not need to go and raise funds from the market.
Another key and related point is the fact that the trust does not have any obligations to invest, meaning it is not in a position where it will become a forced seller to meet such obligations. In fact, the trust is in a position whereby it could make no more investments and still pay a rising dividend for the next 15 years.
This is a reflection of the fact that BBGI pursues disciplined growth that builds shareholder value first, encouraged by an internal management structure, and not growth in assets under management for its own sake.
Taken as a whole, we think this means BBGI offers attractive defensive features, which mean the trust can continue to pay a sustainable, rising dividend over the long-term, that is heavily protected from the risks of an economic downturn or higher refinancing costs.
The trust is also shielded from inflation due to the inflation-linkage in its contracts. Indeed, if inflation does continue to run higher then BBGI can actually benefit from an increase in its underlying revenues.
At the same time, the trust enjoys potential upside from lower inflation and potential rate cuts. If we do see these later this year, it’s plausible the trust would see a tightening of its discount – currently at 13.3% - as investors start to find the nearly 7% forward yield more attractive than it already is.
A widening of discounts across the infrastructure sector over the past two years can leave you with the impression that rate hikes have impacted – or are likely to impact – all trusts equally. The reality is that some are much less susceptible to the risks higher rates create than others.
BBGI Global Infrastructure (BBGI) is a prime example of this. The trust has a globally diversified portfolio of availability-style assets, with government or government-backed counterparties and inflation-linked contracts. All of the trust’s holdings are in AA/AAA-rated investment grade economies.
The result of this set up is that BBGI’s investments produce highly predictable cash flows from reliable public sector counterparties, regardless of economic cycles or market volatility. The pandemic provided a great example of the strength of this model as the trust continued to generate its usual cash flows, despite the global economy grinding to a halt.
From these secure, predictable cash flows, BBGI has been able to deliver annual increases to dividend payouts, and BBGI has met or exceeded all its dividend targets since its IPO in 2011. Indeed, the trust is targeting an annualised increase to dividends of 6% for 2024, following a 6% dividend increase for 2023, these are sector leading dividend increases. These are likely to be fully covered as BBGI aims to have dividend coverage of 1.3x over the long-term.
The inflation-linkage in the trust’s contracts also means that it has been more immune from the impact that rising prices have had elsewhere over the last two years. The inflation-linkage in BBGI’s contracts is index-linked and works in a mechanical way, with mark ups to contracts made and passed directly on to clients, in some instances on a monthly basis.
BBGI also mirrors these contracts with the management companies it pays to ensure the trust’s holdings remain fit for use. This limits the degree to which there can end up being a mismatch between revenue the portfolio generates and the amount that must be paid to these contractors.
What this has meant in practice over the past two years is that BBGI has seen an increase in revenues, as it has been able to mark up contracts with its counterparties to reflect higher rates of inflation. At the same time, equivalent agreements with the trust’s contractors mean that costs have been kept under control and not increased to the detriment of the trust’s earnings.
Secure, increasing revenue is important but it has arguably been fears around debt that have prompted reratings in the broader investment companies market. However, here too BBGI’s managers have structured the trust to shield it from the impact that higher rates could have.
The majority of BBGI’s debt is on the portfolio level, with no structural gearing at the trust level. What is particularly significant here is that 55 of the trust’s 56 holdings have fully amortizing fixed rate borrowing costs, with no refina
Should be really positive? The recent KEPLER summary is well worth a read if you haven’t seen it already?
This is going ex-divi next Thursday 23rd February. That may provide the ideal buy-in price of close to 140p. We shall see……….
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Let’s make that today , forgot about b/holiday.
Due to the future inflationary pressures starting to mount up I am adjusting my funds and shares a bit and having seen this company mentioned in the FT I am going to buy on Monday with a bit of profit from a few of my funds that aren’t inflation linked. Also adding to Unilever which is inflation bomb proof. :-).
Why I am invested in BBGI Global Infrastructure.
I monitor many top 350 shares and I had BBGI on my watch list for over two years and began buying in February 2021.
I am transitioning from AIM to top 350 companies with a goal of obtaining dividends of £40,000 a year from my SIPP.
I currently have seven shares that are paying me almost £3,000 over April & May and I have a goal of a minimum dividend yield of 4%.
BBGI are paying their dividend today and they did offer me a script alternative but, on this occasion, I decided to accept the cash dividend.
Currently they yield about 4.18% and in 2021 they have a goal of paying 7.33p which at the current price of £1.724 is a yield of 4.25%.
What BBGI do is in the name “Global Infrastructure” Where they invest in reliable and dependable infrastructure projects with a guaranteed income.
RKB
Recommended share tips today!
going to catch fire this one, which, given the current volatility, is something for which i'm grateful. Decent dividend from this niche infrastructure business should allow for a decent night's sleep. Almost nodding off typing. All imho, dyor. GL out there.
was pretty big?
Bilfinger Berger Global Infrastructure has completed the acquisition of interests in three projects from Assura Group for 9m pounds. The company is buying the equity and subordinated debt interests in Liverpool & Sefton Clinics, North London Estates Partnerships and Mersey Care Mental Health Hospital. The Liverpool & Sefton Clinic project is a UK concession to develop, fund, build, operate and manage primary healthcare facilities in Liverpool and Sefton. The North London Estates Partnership project is a UK concession to develop, fund, build, operate and manage primary healthcare facilities around Barnet, Enfield and Haringey. The Mersey Care Mental Health project involves transforming the former Walton Hospital site in Liverpool into a new, 85 bed, mental health in-patient facility. "The acquisitions are accretive and allow us to increase our stakes in these high quality PPP projects at attractive pricing levels," said Co-Chief Executive Frank Schramm.
These are as steady as a rock....buying patterns all look very uniform....is this pension funds buying .....looked at the prospective, what is a seed portfolio????