Infratil investors watch $1b war chest

UPDATED: Infratil [NZX: IFT] investors are waiting to see what the listed investment firm will do with the $1 billion war chest it has built up since selling its Z Energy, Lumo and iSite holdings in the 2016 financial year.

The Wellington-based company is sitting on cash of almost $730 million and unused credit lines of about $270 million  it plans to invest both within its existing units and in new opportunities. Chief executive Marko Bogoievski told a briefing in Wellington that Infratil's focus is on renewable energy, the retirement sector, social infrastructure such as housing, telecommunications infrastructure, and waste management.

"Some sectors are represented in our portfolio today and there are some we hope to have in the near future," he said.

Last year Infratil was trumped in its pitch for Australian renewable firm Pacific Hydro by Chinese state-owned power company SPIC in what Mr Bogoievski said was "quite a large margin."

He expects that kind of competition to remain as long as low interest rates continue to provide cheap funding and cause some investors to change their tolerance for riskier assets. However, he's still optimistic about Infratil's ability to deploy its capital through both its existing businesses and in new acquisitions.

That includes upgrades at Wellington International Airport, the potential for investing in the development business of Trustpower if a proposed demerger goes ahead, introducing electric vehicles to its NZ Bus fleet, and building out its retirement village units.

"There's quite a significant amount of internal capex planned for this current year," he said. "We will make quite a large commitments when we get access at the right prices – I think that's reasonably likely in this 2017 fiscal year."

Infratil today announced its annual underlying earnings rose 2.5% to $462.1 million, meeting guidance, and affirmed its forecast for 2017 earnings before interest, tax, depreciation, amortisation and fair value movements of between $475 million and $515 million.

The shares advanced 1.2% to $3.35, having gained 1.1% so far this year.

Mark Lister, head of private wealth research at Craigs Investment Partners, said the result was broadly in line with expectations, and investors are waiting to see what Infratil does with its capital.

"It really is a case of what do they choose to do with their funding capacity – have they got any other investments they're willing to look at and how do they deploy that capital and make use of that balance sheet?" he said. "That's really what it comes down to when you're looking out over the next couple of years."

In its annual report released today, Infratil said it has refrained from returning capital to shareholders due to market uncertainty creating good investment opportunities and the long lead-in times for the company's internal investments.

The company's capital position allows for up to $1 billion of new investments, a capital return of $500 million to shareholders, or a combination of the two.

"Of course, as time goes, if investments are not made, then excess capital will be returned to shareholders," Mr Bogoievski and chairman Mark Tume said in the annual report.

(BusinessDesk)