Friday 17th May 2019
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Infratil’s purchase of a stake in Vodafone New Zealand will be transformative for its portfolio and should generate the sort of returns that will allow the company to return to a rising dividend track, chief executive Marko Bogoievski says.
The $3.4 billion purchase, in partnership with Brookfield Asset Management, and a series of divestments underway, will complete the portfolio “reset” the company has had underway in recent years, he said.
Forecasting a steady dividend at 17.25 cents a share this year partly reflects the “transition phase” the firm will be in while it absorbs and integrates Vodafone, the country’s biggest mobile operator. Dividend-per-share growth will resume, but it’s hard to pick when, given the company will also have other uses for its capital, Bogoievski said.
“Vodafone actually looks to us to be quite an attractive yielding sort of asset, on a normalised long-term basis, and should add – everything else being equal – to our ability to continue DPS growth.”
He described the $3.4 billion purchase price as a “reasonable number to get going on.”
Integrated communication companies are a mix of lower-risk and growth businesses, he said. When managed well and with leading market positions they can deliver quite predictable cash flow.
And he said it’s not so much about revenue growth.
“It’s a lot to do with the way you can reduce the amount of capital in your own business, and achieve productivity and efficiency gains and in the long-run it’s also about reducing or managing the amount of capital that goes into the aggregate market,” Bogoievski told an investor presentation in Wellington.
“There’s a lot of work and potential benefits if we do it well.”
Infratil today kicked off the sale of 100 million new shares at $4 each to help fund the purchase.
The underwritten offer is structured as a $100 million placement of 25 million shares to institutions. The balance will come from an accelerated renounceable entitlement offer, which existing shareholders can subscribe for at a rate of one new share for every 7.46 shares held at the close of trading on Tuesday, May 21.
The $4 application price is a 10.4 percent discount to the volume-weighted trading price the past five days.
Infratil said the structure allows the firm to gain most of the funding from existing shareholders, while also drawing in new institutional and retail investors through the placement.
The company’s shares last traded at $4.45. The stock has gained about 22 percent so far this year. Trading was halted today for the institutional elements of the offer, which will be completed on Monday.
The retail offer opens May 23, with the new shares expected to be allotted on June 18. All the new shares will qualify for the company’s 11-cent final dividend - the dividend reinvestment plan won't apply.
Infratil and Brookfield will each put in $1.03 billion with Vodafone taking on $1.34 billion of debt. Infratil can fund its share of the deal from existing bank facilities and a new $800 million acquisition facility.
That facility is structured with $600 million maturing in 2021 and the balance from 2023 and later.
Chief financial officer Phillippa Harford told investors that was structured to ensure the deal could go ahead regardless of the state of equity markets. The raising announced today means only $200 million of that initial funding will be needed for the purchase.
Bogoievski noted that the $400 million sum reflects the other capital calls the firm expects but also a conservative expectation of the asset sales the firm has underway.
In the past five years Infratil sold out of Z Energy and its Lumo energy business in Australia and expanded into retirement housing in Australia, data management and renewables in the US through Longroad Energy. Canberra Data Centres has overtaken Wellington Airport as its second-biggest asset.
Agreed sales in the past year include New Zealand Bus, student accommodation at Australian National University and its Snapper transport card.
Today the company said Perth Energy no longer fits its portfolio. Negotiations have started with prospective buyers with the aim of completing a sale in the current financial year.
Harford said the A$162 million proceeds from the ANU sale are expected next week. It is expecting $160-170 million from Next Capital for NZ Bus, and wrote down the carrying value of that business by $27.2 million. Infratil currently values Perth Energy at $90 million.
Earlier today, the company reported a 1.2 percent decline in underlying operating earnings to $539.5 million for the year ended March 31. The decline was due to almost $103 million of portfolio incentive fees paid to contract manager HRL Morrison and Co.
Excluding fees, earnings before interest, tax, depreciation, amortisation and changes in financial instruments rose 20 percent to $581.1 million from $482 million.
The company last month lowered its ebitdaf guidance for the period to $535-$545 million, reflecting the increased incentive fees, a delay booking the gain on the sale of Longroad Energy’s Rio Bravo wind project in Texas, and weaker contributions from other assets.
The improved results were driven by strong performances from Longroad, Tilt Renewables, Wellington International Airport and Canberra Data Centres. They offset lower earnings from Trustpower and RetireAustralia.
Bogoievski said Trustpower’s performance remains strong, with the decline really reflecting the “stellar” hydrology and pricing the company enjoyed the year before.
The company still believes in RetireAustralia, which is now picking up pace on some of its development activities, including its first greenfields development expected in 2020.
Excluding the earnings of NZ Bus, Perth Energy, ANU and other investments the firm has quit, Infratil said underlying ebitdaf from continuing operations was $477.5 million.
Including a seven-month contribution from Vodafone, it expects underlying earnings for the current year from continuing operations of $635-$675 million.
The company will pay the final dividend on June 27 to shareholders registered at June 21. The 11 cents per-share payout is up from 10.75 cents a year earlier and takes full-year dividends to 17.25 cents a share.
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