(Alliance News) - HICL Infrastructure PLC on Tuesday said it is on track to meet its dividend target for its current financial year and has decided to maintain this target for its financial year ending 2022 as well given the "current environment".
The FTSE 250-listed infrastructure investment company is on course to deliver its 8.25 pence per share dividend target for its financial year ending March 2021, with cash cover in line with its 0.8 times to 0.9 times guidance.
HICL said it has determined "that a continuation of the current level of dividend is prudent in the current environment" and so will also target an 8.25p per share dividend for financial 2022.
HICL also commended on its portfolio performance, especially High Speed 1. It said HS1's performance remained "supported by contracted train path access charges for domestic services", which made up 68% of annual track access revenue in its year to March 2020.
Pre-bookings for domestic train paths, HICL said, are in line with pre-Covid levels and while pre-bookings are below pre-Covid levels for between May 2021 and December 2021, the impact on HS1 revenue has been "almost entirely mitigated by the contractual underpin provided by the Department for Transport."
In terms of international services, HS1 was insulated from lower train volumes through to mid-December thanks to Eurostar pre-bookings.
After that, Eurostar used more flexible 'spot' booking provisions and consequently track access revenue reflects "the very low volume of trains currently being run". Recovery in international train path bookings is likely dependent on the lifting of quarantine measures, which in turn depends on pandemic recovery.
However, HICL noted that: "In recent weeks, Eurostar has publicly indicated that the prevailing travel restrictions pose a threat to its viability and that government support is likely to be required. HS1 is working collaboratively with Eurostar to support these efforts where possible and continues to engage with key HS1 stakeholders."
HS1 has, HICL said, "a positive relationship with its lenders" and is expecting to keep working with these lenders collaboratively over the coming months.
"HS1 benefits from sufficient liquidity within the group to fund debt service through 2021 in a range of plausible downside scenarios. Notwithstanding this, the investment manager continues to work closely with the HS1 management team and co-shareholders in planning for a range of possible outcomes linked to the timing and extent of the recovery in international train services," said HICL.
In terms of regulated assets, which represented 9% of HICLs portfolio at the end of September 2020, are preforming in line with expectations. For Affinity Water, 7% of portfolio value on September 30, the UK competition & Markets Authority is expects to release its final determination in respect of companies that made PR19 appeals in mi-March.
Affinity Water itself did not appeal, but the outcome of these appeals when it comes to allowable cost of capital will be relevant to the firm in terms of future asset management periods.
The UK's complete departure from the EU has not had a material impact on HICL, and significant adverse results from the withdrawal process and trade arrangements following the UK-EU deal "are considered unlikely".
The next valuation of HICL's portfolio will be as at March 31, published as part of its annual results in May. HICL noted the UK's decision to align the calculation of the retail price index with the consumer price index including owner occupiers' housing costs from 2030, but said this change has yet to move market expectations for RPI.
"Given the ongoing uncertainty regarding the longevity and effects of the pandemic, the investment manager continues to monitor valuation drivers that affect the company's demand-based assets, namely: discount rates; the trajectory of economic recovery; and the longer-term traffic growth profile for the assets," said HICL.
There is likely to be a downward pressure on discount rates due to "sustained demand from institutional investors". Lower interest rate forecasts and negative foreign exchange movements, as well as reduced historic inflation are all expects to have a negative impact as well.
The company said it is aware of the harm from continued movement restrictions on HS1, especially the higher risk to asset level liquidity from the "very low level of international services" as well as the higher risks from forecasting post-Covid traffic levels for HS1.
The company highlighted that it has more than GBP350 million available under its revolving credit facility.
Chair Ian Russel said: "HICL's well-diversified portfolio continues to demonstrate its resilience against an uncertain backdrop, with the impact of the pandemic restricted to the minority of assets exposed to user demand. The company remains robust, well-capitalised and appropriately positioned to pursue its strategy in the current market.
"The priority of the board remains the effective, long-term stewardship of essential public infrastructure for our investors and for the communities which the assets serve. While the board is encouraged by the prospect of a degree of recovery from the pandemic over the course of 2021, the directors' primary focus - and that of the investment manager - remains the active management of our assets, especially over the coming months."
Shares in HICL were up 1.2% at 170.20 pence in London on Tuesday morning.
By Anna Farley; annafarley@alliancenews.com
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HICL Infrastructure (HICL)