Results analysis from Kepler Trust Intelligence

Sequoia Economic Infra Inc Fd Ld

27 June 2024

 

Sequoia Economic Infrastructure Income (SEQI)

27/06/2024

Results analysis from Kepler Trust Intelligence

Sequoia Economic Infrastructure Income (SEQI) has released its financial results for the year ending 31/03/2024. Over the year, the trust saw its NAV increase by 8.1% on a total return basis, in excess of its target return of 7-8%.

SEQI paid a total dividend of 6.875p per ordinary share which represents a yield of 8.7% on the share price at the time of writing. The trust delivered a total share price return of 9.6%, helped by a modest narrowing in its discount from 13.8% to 13.5%. The discount has since widened to 16.2%.

The managers have been active in portfolio management, increasing the proportion of fixed rate investments from 42% to 58% over the financial year to position the portfolio to take advantage of the expected fall in interest rates.

The managers and board also continue to take a proactive approach to capital allocation, repaying the revolving credit facility to reduce net debt to zero and returning £88 million to shareholders via a share buyback programme.

Chair James Stewart commented: "I am pleased to announce another resilient year of performance, despite ongoing challenges in the macroeconomic backdrop."

Kepler View

Sequoia Economic Infrastructure Income (SEQI) generates a high yield for investors by lending against infrastructure projects backed by the security of tangible physical assets. The infrastructure sector is forecast to enjoy strong growth from mega-trends such as digitalisation and decarbonisation, which require trillions of pounds of investment.

This has led to a significant growth in private sector financing as a means of plugging the gap from government spending. We think SEQI is well-positioned to take advantage of this opportunity as the only listed economic infrastructure debt vehicle in the UK. One of SEQI's strengths is the diversification of its portfolio, with around 55 investments across 30 sub-sectors.

Against a challenging backdrop for alternatives, SEQI has delivered a strong set of results with a NAV and share price total return of 8.1% and 9.6% respectively. This was primarily due to its focus on credit quality through the year.

In our view, SEQI could be an attractive proposition for investors seeking exposure to the infrastructure sector, which offers defensive qualities in addition to strong secular growth themes. While there would be some negative impact on income from falling interest rates, the managers' decision to build up fixed rate exposure has counteracted some of this. We think the dividend looks sustainable over the coming year, thanks to the high amount of liquidity available and the current outlook for rates. Given the likely positive impact of falling rates on the valuation of the portfolio, we think there is the potential for strong total returns in such an environment from the 8.7% dividend yield plus capital upside from pull to par and a possible narrowing of the discount.

CLICK HERE TO READ THE FULL REPORT 

Visit Kepler Trust Intelligence for more high quality independent investment trust research.

Important information

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.

The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.

This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.  

Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm's internal rules. A copy of the firm's Conflict of Interest policy is available on request.

PLEASE SEE ALSO OUR TERMS AND CONDITIONS

Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 70 Conduit Street, London W1S 2GF with registered number OC334771.

 

END