Infratil hints at taking outside investment in its US renewables unit to prove its value

Infratil has hinted it may take on a new investor in its US renewable energy business, Longroad, as it hinted at strong investor appetite for the business.

On Friday Infratil, the infrastructure investment fund, reported a rise in earnings for the six months to September 30, boosted by the sale of Tilt Renewables, the Australasian renewables company.

The sale of Tilt for almost $3 billion – Infratil owned about two thirds of the company – saw Infratil pay off all of its bank debt and be left with a pile of cash.

It also left the $5.9b fund heavily skewed towards digital infrastructure, which now accounts for 55 per cent of its assets, mainly through its ownership of CDC Data Centres and Vodafone New Zealand.

Chief executive Jason Boyes said he expected the balance to shift as it invested more in renewable energy, with Infratil announcing a new Asian businesses, Gurīn Energy, in September, joining its US and European businesses.

During a presentation for analysts, Boyes said Longroad had capability that was “really scarce, differentiating and in high demand from a lot of investors in this space”.

The Biden administration’s plans for new renewable energy was both improving the businesses’ prospects, but also the valuation of its assets to buyers.

“We think this business is poised to scale quite quickly from here,” Boyes said, adding that the company was assessing ways to grow, including “inorganic” options such as purchasing development pipelines.

“This could include some one joining NZ Super and Infratil, and the principals, obviously, in the ownership of Longroad, if we can see real benefit to Longroad to scale quite quickly, and recognise some of that value that we’re seeing in the market, so look out for that.”

At the time of the launch of Gurīn Energy in September, Infratil published a slide suggesting the independent valuation of Longroad at US$1.28b ($1.83b) amounted to an earnings multiple around half of the multiple implied in the final price for Tilt.

Wellington-based Infratil said it achieved the largest surplus in its 27-year history, with a net parent surplus from continuing operations of $1.1 billion for the six months to September 30.

Almost all of the gain came from the sale of its majority stake in Tilt Renewables, which contributed a gain of just over $1b.

Infratil’s proportionate earnings before interest, tax, depreciation, amortisation and fair value adjustments (Ebitdaf) rose 28 per cent on a year earlier to $253.6 million.

Boyes said the results reflected good performance across the business, but trimmed the full-year profit expectations marginally to Ebitdaf of $500m to $530m due to the addition of its new UK data businesses and the impact of Covid restrictions on Wellington Airport and Infratil’s diagnostic imaging businesses.

Infratil will pay a dividend of 6.5c a share, a 4 per cent increase on a year earlier.

While Infratil is sitting on a large cash pile, it had decided against paying special dividends because “we do not view special dividends as the best use of funds”.

However, Boyes flagged dividends increasing further in line with cash earnings from CDC Data Centres, Vodafone and its diagnostic imaging businesses.

“This approach provides our shareholders with a solid and sustainably rising dividend and enables us to continue to prudently and productively deploy the capital in ideas that matter.”

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