While it said it remains positive it will continue to see “considered” growth over the year, it said a lack of clarity from the UK government on future public infrastructure development and growing competition could act as headwinds in 2016, said GCP Infrastructure Investment. But, the firm remains positive it will continue to see “considered” growth over the year.
Writing in the commentary alongside its results for the year to end September 2015, the UK-infrastructure investment trust said: “Consistent clarity regarding the scale and details of future UK infrastructure development remains elusive whilst an increasing appetite for infrastructure exposure has seen prices rise across the sector.”
While the firm maintains that government continues to seem broadly supportive of infrastructure development as driver of economic growth, it said, the changes made recently with regards government policy toward renewable energy were particularly in the spotlight, Ian Reeves explained in his chairman’s statement.
“Recent developments in the renewable energy sector over the year have further compounded the lack of activity in the conventional infrastructure space,” he said, adding: “While the UK still faces binding targets to increase the proportion of its energy generated from renewable resources to 15% by 2020, a number of recent policy actions have served to undermine the government's commitment to deliver a low‑carbon economy.”
Specifically, this took the form of the scaling back or withdrawal of a number of key incentives to prospective developers, including the earlier than previously planned withdrawal of ROCs for onshore wind and small‑scale solar, a significant reduction in the FiT subsidy for domestic solar he said.
The second headwind, an increase in competition within the space, stems from the growing recognition on the part of lenders of the value of infrastructure investments from both a diversification and a yield point of view.
According to the firm, there are estimated to be in excess of £18bn of unlisted equity and debt funds with a mandate to invest in infrastructure in the UK, while LSE-listed companies focused on investment in UK infrastructure raised £824m in the same period.
By way of example, lead partner, Rollo Wright, told Portfolio Adviser, in the past year pension funds have begun to make some investments into biomass. That would be unheard of in previous years.
As a result of this, yields have been pushed down in the sector and good long term investment opportunities are harder to come by.
Despite this, however, the firm managed to advance over £220m of new loans against renewable energy, social housing and PFI assets during the year. Indeed, over the course of the year the firm made 16 new investments, 12 new loans, three extensions to existing facilities and refinanced eight existing loan notes.
For the full year, the firm produced a total return of 9.5% and a 58% jump in in profit to £48.7m. It also raised £140m through two significantly oversubscribed share issues as well as managing to raise a further £20m post year end.
It declared a dividend of 7.6p per share.