Infratil sees 30% lift in CDC earnings; maintains dividend

Infratil is signalling a 30 per cent earnings improvement from its CDC Data Centres investment in the current financial year.

CDC, now the biggest asset in Infratil's portfolio with a value of more than $1.4 billion, is expected to report operating earnings of A$145 million ($155.2m) to A$155m, Infratil said.

That is up from A$117.5m reported for the March year, itself a 63 per cent improvement on the previous year.

CDC, which is aiming to have two large-scale centres completed in Auckland by the end of 2022, was a standout performer in the group's full-year result today. It contributed $59.6m in earnings before interest, tax, depreciation, amortisation and changes in financial instruments, $22m more than the year before.

Infratil's underlying ebitdaf climbed to $480.9m, from $431.2m a year earlier, excluding businesses sold during the past year.

CDC completed two expansions in Australia during the period and commenced construction on a third. Preparatory work began on two other sites in Canberra and Sydney and the two Auckland sites.

Not created equally

Infratil chief executive Marko Bogoievski said the firm is confident in CDC's forecasts, and noted the firm's "prudent expansion" from Canberra, into New South Wales and now New Zealand.

"Data centres aren't created equally" and CDC is well-positioned by its strong links with its corporate customers and the federal government in Australia, he said.

Infratil shares rose 3 per cent to $4.965, trimming the stock's decline so far this year to 1.5 per cent.

The company didn't provide an earnings forecast for the current year but maintained its final dividend at 11 cents a share, payable on June 15 to investors registered at June 8. In April the firm had signaled that could be trimmed.

Bogoievski said the payout at 11 cents had been the firm's pre-Covid expectation.

"We just didn't feel the need to moderate that," he said, reflecting "a bit more confidence" the firm has now than in early April.

Bogoievski said it made sense to provide the earnings expected from CDC, noting that its other investments, Trustpower and Tilt Renewables, had provided guidance earlier this week.

High quality

But for "sort of obvious" reasons, it was too early to take a firmer view on the outlook for Vodafone New Zealand – acquired in July - Longroad Energy in the US, Wellington International Airport, and RetireAustralia.

Vodafone is a "high-quality" part of the New Zealand economy, but probably will feel the impact of small business failures and some corporate cost-cutting, Bogoievski said.

There could be some delay in that and "we are cautious about the next six-month period."

Bogoievski said the US market for power purchase agreements had also gone quiet temporarily, but quality developers like Longroad should still get their share of projects away as activity recovers.

Wellington International Airport had been much harder hit by the crisis and its outlook will be determined by the pace that domestic and international travel recovers.

"We have no idea when this trans-Tasman bubble will start."

Despite the uncertainty, Bogoievski said Infratil is still having to ration its capital toward its best-returning opportunities.

New opportunities

It is also seeking new investments, although the firm is not convinced there are a lot of Covid-driven opportunities to invest in yet.

"We are not out of the business in terms of looking for new opportunities."

Infratil aims to deliver annual returns of up to 15 per cent by investing in faster-growing infrastructure categories, with a focus on assets that have both defensive and growth characteristics. Its preference is towards renewable energy, data, telecommunications and retirement assets.

The $480.9m of underlying ebitdaf reported today was after international portfolio fees of $125m due to manager Morrison & Co. It excluded businesses sold during the past year, including NZ Bus, Perth Energy and the firm's former Australian student accommodation interests.

But the $154.9m, eight-month contribution from Infratil's stake in Vodafone masked a weaker operating performance from power retailer Trustpower, Infratil's second-largest investment.

Tilt Renewables' operating earnings were down following the sale of the Snowtown 2 wind farm in December. The lumpy development profile and the accounting treatment of realisations by Longroad saw reported earnings from that business drop to $4.7m from $46.5m the year before.

Infratil estimated the firm's economic gains from Longroad's developments in the period at US$30m ($48.3m) to US$43m.

The Wellington-based investment group today reported a net profit of $484.2m, up from $52.4m the year before. That was boosted by almost $517m of realisations and revaluation gains, mostly its share of the Snowtown 2 proceeds.

Lost power sales

Excluding businesses sold the past year, net profit was $508.8m, from $64.4m the year before. Net profit attributable to Infratil shareholders was $241.2m, up from a $19.5m loss the year before.

Infratil also cited the forecasts provided this week by Trustpower and Tilt. Trustpower is hoping for an improvement in ebitdaf to $190m to $215m allowing for low North Island storage and commercial power sales lost to the Covid shutdown.

Tilt is expecting earnings of A$80m to A$95m, reflecting lost production from the December sale of Snowtown 2 and the uncertain completion timing, and earnings from, the Dundonnell and Waipipi wind farms currently under construction.

Tilt booked a A$486m profit on the sale of Snowtown 2 and plans to return A$260m of that to investors in July.