Infratil sees flat earnings in 2018, still hungry for investments

Wednesday 29th March 2017

Infratil is anticipating flat earnings in the 2018 financial year but is confident it can keep boosting returns to shareholders, and is still on the prowl for new acquisitions.

The Wellington-based investment firm expects underlying earnings before interest, tax, depreciation, amortisation, and fair value movements of between $470 million and $510 million in the year ending March 31, 2018, largely unchanged from 2017's forecast for earnings of $485 million to $505 million. The firm is holding its annual investor day, where it provides greater details of its operations to the investor community, and reaffirmed its goal of increasing dividends, "which remains on track given the outlook for the year ended 31 March 2017". It paid 14.25 cents per share in 2016, up from 12.5 cents a year earlier.

The earnings guidance doesn't account for any new investments or asset sales, and relies on long-run average hydrology and wind volume forecasts for its energy businesses, the roll-out of new council contracts in Auckland and Wellington under negotiation for NZ Bus, later care asset development at RetireAustralia, and new growth strategies bedding in.

Infratil reported a 7.1 percent decline in first-half earnings as its Perth Energy division struggled in tough retail conditions, leading to a downgrade in the annual earnings forecast, and has been overhauling its investment portfolio after sales of Z Energy, Lumo and iSite left it flush with cash.

Some of that capital has been poured into new investments including Canberra Data Centres, Australia National University student accommodation, and US renewable business Longroad. Infratil today said it still has $380 million of cash and available facilities and "significant near-term opportunities" in renewable energy, eldercare and data infrastructure sectors.

Presentation slides to the briefing show the firm's "explicit focus" for the 2018 year will be to get the most from its existing portfolio by addressing the performance of core assets, inject capital into the highest development opportunities, and tighten the overall portfolio. Infratil said uncertainty over valuations is at a peak in the investment cycle.

Infratil's core cash-generating units - Trustpower, Wellington International Airport, NZ Bus and Australia National University student accommodation - are used to support the company's debt and dividend. While it's still looking for new additions at the right price to join that group, it will also "rotate out of businesses with declining outlooks," the slides said.

The company will use today's investor day to provide more detail about its new businesses: Longroad, Tilt Renewables, RetireAustralia and CDC, which seek to build larger development returns and increase scale as the units mature.

Infratil expects operating cash flow of between $210 million and $250 million in the 2018 financial year compared to a forecast range of $215 million to $235 million this year, and a slightly lower net interest bill of $160 million to $170 million, down from $165 million to $175 million in 2017.

The shares last traded at $2.91 and have gained 5.8 percent so far this year, outpacing the 2.7 percent increase in the S&P/NZX 50 index over the same period.

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