Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest for the past six decades.
A bounce in Pantheon Infrastructure after strong half-year results is a welcome sign the stock market is waking up to the bargains in this investment company sector.
Like other funds focused on alternative assets, London-listed infrastructure companies have seen their shares fall below the value of their investments in the past three years.
Concerns about inflation, rising interest rates and high charges have depressed the shares so that the average infrastructure fund trades 17pc under net asset value.
These wide discounts have proved stubborn, despite interest rates starting to fall and evidence that key infrastructure assets, such as data centres, transport and renewable energy, fetch high prices when sold in private, off-market transactions.
That fact alone should make investors sit up and wonder why they can buy £1 of assets in these funds for just 83p a share.
However, there was no denying the good news in Pantheon Infrastructure’s interim results and the shares have jumped by 7.5pc in the past week, bringing their gain over six months to 21pc.
Despite their rebound, at 92.6p the shares still languish at a 20pc discount and around 12pc below their 100p launch price in November 2021, having tumbled from a 110.5p peak in early 2022.
The big gap between the shares and their underlying net asset value of 113.9p looks a huge anomaly considering the progress the company is making.
Having committed £526m of investors’ capital to 13 assets in its first two years, Pantheon Infrastructure has a more diversified portfolio than Cordiant Digital Infrastructure, which we recommended last month with five assets in Europe and North America.
Digital infrastructure is Pantheon’s dominant sector, accounting for 45pc of the fund, with the remaining assets spread 28pc in power and utilities, 16pc in renewables and energy efficiency and 9pc in transport and logistics.
The portfolio is geographically balanced with 45pc in Europe, comprising investments in Spain, Netherlands, Germany, Austria and Ireland, alongside 37pc in North America and 16pc in the UK.
With the global economy slowing, there is a reassuring defensive quality to Pantheon’s group of essential service providers, such as Primafrio, a rapidly expanding fruit and vegetables transportation company in Spain, or National Gas, the owner and operator of the UK’s gas transmission network. Even in a severe downturn, these businesses would be in demand.
In addition, the investment company receives stable cash flows from long-term contracts that most of its portfolio companies have with blue-chip clients. As with other infrastructure funds, much of this income is linked to inflation, a useful protection should we see another spike in prices.
This is a “best ideas” fund tapping into the most attractive deals that fund manager Pantheon Ventures can find from specialist infrastructure managers with which it has invested $21bn in 1,500 assets.
Pantheon Infrastructure invests alongside some of the biggest names in investment, such as New York’s Kohlberg Kravis Roberts with which it holds a £36m stake in CyrusOne, a US data centre provider enjoying a boom driven by artificial intelligence and cloud computing.
By investing with these firms, but not in their funds, Pantheon Infrastructure keeps a lid on costs that can get out of hand.
At flotation, the company aimed to provide an underlying annual total return from its investments of between 8pc and 10pc so news of a first half 8.5pc return impressed. This was mainly caused by its investment in Calpine, a US gas and renewable power provider, soaring from £20.3m to £76.7m on high energy prices and trading revenues.
A 33pc rise in profits indicated a healthy portfolio with this year’s dividend target lifted by 5pc to 4.2p per share. The payout has more than doubled from 2p in year one but is still uncovered by earnings. Richard Sem, the fund manager, explained some companies were reinvesting cash for growth but that the dividend would be fully funded next year.
Mr Sem joked that with the annual return target achieved, he and co-manager Ben Perkins could take the rest of the year off. In fact, they have their work cut out persuading investors into the fund.
Fortunately, last month’s announcement by the Government that it will reform faulty rules on charges disclosure next year should help as they made many investment companies appear more expensive than they were.
With that resolved and interest rates falling, we could see infrastructure shares recover, making this a good time to back one of the best positioned funds in its undervalued sector.
Questor says: buy
Ticker: PINT
Share price: 92.6p
Gavin Lumsden is editor of Citywire’s Investment Trust Insider website
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