Infratil flush with investment options after portfolio overhaul

After selling stakes in Z Energy, Lumo and iSite in 2016, Infratil found itself flush with funds and keen on investing in renewable energy.

Listed infrastructure investor Infratil is option rich in ways to spend its money after overhauling its portfolio and says US renewable energy projects show a lot of promise.

The Wellington-based firm has $630 million of funds available having spent $560m on new investments and a further $168m on capital expenditure in the year ended March 31. After selling stakes in Z Energy, Lumo and iSite in 2016, Infratil found itself flush with funds and keen on investing in renewable energy, the retirement sector, social infrastructure such as housing, telecommunications infrastructure, and waste management.

In the latest financial year, some of that capital was redeployed with Infratil buying stakes in Canberra Data Centres, establishing US renewable energy firm Longroad Energy, carving out Trustpower's wind energy business into a separately listed entity Tilt Renewables, and investing in ANU student accommodation.

Chief executive Marko Bogoievski yesterday told analysts at a briefing in Wellington that puts Infratil "at the front end" of most infrastructure investors and exposed to big upside capital gains.

"We have these multiple positive exposures to what we think are very favourable long-term trends that we can expose our capital to," Bogoievski said. While that made it difficult for analysts when valuing the company, "holding that many options and real management capability outweighs the conglomerate discount," he said.

Infratil's Longroad investment was singled out as offering major opportunities for the company. Longroad was established with the New Zealand Superannuation Fund and has enlisted a team of managers with a track record in the US, having set up a similar venture in 2002 that developed 38 utility scale projects with 4,000-megawatt capacity, eventually selling 12 years later for more than US$2 billion. Infratil, NZ Super and the management team committed US$100m to develop renewable projects, which Bogoievski said fully funded development opportunities.

"Our capital is prepared to position itself in development focus, but can and will construct and hold assets if we think there are better returns from that," and Bogoievski said Infratil has a "positive bias" towards those opportunities.

"I'd keep an eye on this one, it could easily generate at least options for deploying capital much larger than what we've flagged earlier," Bogoievski said.

The Canberra Data Centres business was tracking slightly behind expectations at the end of the financial year, however Bogoievski said the increased outsourcing by the federal government in Australia meant the unit will need to build a 20 MW facility in the second half of this year, and earnings should catch up as a result.

"This business is about what's happening in the next two or three years - it will be in the portfolio for a very long time" and could branch out into new ventures including data centres and telecommunications infrastructure, he said.

Infratil exited its stake in listed retirement village operator Metlifecare just after the March 31 balance date, booking a $93.9m gain on the sale. Bogoievski said Infratil wanted a bigger stake in the business, and had initially sought to buy the entire 40 per cent stake from Retirement Villages New Zealand, but missed out because the vendor wanted a quick exit without needing shareholder approval.

"We were influential, it just wasn't enough equity for us to devote that amount of resource," Bogoievski said. "We reached the conclusion that we couldn't see getting control of that business that made sense to us, relative to all other opportunities in our portfolio."

The portfolio overhaul didn't weigh on Infratil's operations, with underlying earnings before interest, tax, depreciation, amortisation and fair value movements in financial instruments rose 12 per cent to $519.5m in the 12 months ended March 31, beating guidance for ebitdaf of between $485m and $505m. The result got a late boost from favourable Australian weather that lifted the contributions from Trustpower's Australian hydro assets and Tilt's Australian windfarms.

The shares last traded at $3 and have declined 11 per cent in the past 12 months while the benchmark S&P/NZX 50 Index gained 5.6 per cent.