17 June 2019

    Infratil – backing mega trends to drive a rosy future

    Infratil has been a long-term holding in our New Zealand share portfolios since 2002 and in May we also added it to our Property & Infrastructure portfolios.

    Infratil is an investment company that owns energy, transport, data and social infrastructure businesses positioned to benefit from mega growth trends. The sorts of mega trends that Infratil focus on include decarbonisation of the economy, data proliferation, aging demographics and growth in air travel. We are strongly of the view that Infratil's focus on these long term drivers of growth is a smart strategy that will reap future rewards.

    It has worked in the past. By backing these mega trends and through astute management Infratil has delivered an impressive 16.0% p.a. total shareholder return since it listed back in 1994.

    During the month Infratil announced the acquisition of Vodafone NZ partnering Brookfield Infrastructure Partners for NZ$3.4b in the deal. To help fund the acquisition Infratil raised $400m of new equity from shareholders.

    While Infratil sees this as an investment with solid mid-teen equity returns, we believe there is potential to materially exceed this.

    To us the deal looks similar to Infratil's extremely successful transformation of Shell's NZ assets into today's Z Energy. Infratil earned 4 times its initial investment in this transaction over just 5 years!

    The Vodafone NZ acquisition further increases Infratil's weighting to the theme of connectivity and long-term data growth, while also strengthening the cash generative core of the portfolio.

    Over the last couple of years the Infratil portfolio has been transformed with the portfolio divesting a number of assets reducing complexity and directing capital back to its high conviction investments. Following the Vodafone NZ acquisition this process is largely complete.

    Trustpower and Wellington Airport (and now Vodafone) remain part of the cash generative core of the portfolio, delivering largely predicable cash flows to help fund higher return investment opportunities. Scalable high-growth investments have been established in data & connectivity (via Canberra Data Centres and now also Vodafone NZ), renewable energy (via Longroad and Tilt) and to a lesser degree the firm's retirement.

    Given the attractive growth we foresee from assets like Canberra Data Centre, Longroad and Tilt we are of the view Infratil's portfolio is well-positioned to continue to deliver attractive net asset value growth. In our view the company is set to deliver on its 10 year 11-15% total shareholder return targets.

    Prior to news of the Vodafone deal, we were in the process of increasing our exposure to Infratil in our NZ Property & Infrastructure and KiwiSaver portfolios. We used the equity raised to acquire stock at a discount.