On the move

By Jenny Ruth

Thursday 6th April 2006

With interests spanning energy, airports, ports and buses, -Infratil is in the business of keeping society moving. Founded in March 1994 through a $50 million share float to invest in infrastructure and utilities, it was an active participant in the rationalisation of electricity companies through 1990s deregulation. Its holdings in electricity retailers have since been divested and its only New Zealand asset in the sector now is a 35% stake in Trustpower, which accounts for a little over 40% of its current assets. It was also a major investor in ports but has progressively divested those assets and has just a 5.3% stake in the Port of Tauranga. It also owns electricity assets in Australia, control of Wellington's airport and airports in Europe. In late 2005 it bought bus services in Wellington and Auckland.

The numbers: Infratil's market capitalisation in mid--February (at $3.80 a share) was $833.5 million. The last annual report says -subscribers to the initial public offer have received a compound return of more than 20% a year after tax and that Infratil had out-performed the New Zealand sharemarket in eight of its 11 years to March 2005. But rather than having a perfect track record, it's a case of getting more things right than wrong. Hindsight showed buying into Tranz Rail wasn't that smart and the company had to write $21.5 million off its stake before accepting Toll Holdings' takeover offer. Its 2001 investment in Glasgow Prestwick Airport has been disappointing and the company has admitted it paid too much for its initial stake in Australia's Energy Developments.

Management: Infratil's manager is Morrison & Co, headed by outspoken investment banker Lloyd Morrison. In September 2005 the company appointed Kevin Baker as its chief financial officer.

Recent track record: Infratil has recently been further diversi-fying its portfolio with add-ons to existing investments and moving into other types of infrastructure. In February it bought the Angaston Power Station in South Australia at "a discount to its replacement cost" of about A$25 million (NZ$27.7 million). In December 2005 it completed the purchase of 90% of Germany's Lübeck Airport for an initial €27 million (NZ$48.2 million) plus assuming €10 million of debt, with a further up to €13 million due in 2008. In November it paid $250.5 million for Stagecoach New Zealand, then in January conditionally acquired bus company Mana Coach Services. Stagecoach now accounts for more than 15% of Infratil's assets. In September 2005 it bought 11% of oil and gas explorer Austral Pacific for $9 million. In August it bought the Kent International Airport for £17 million (NZ$44.3 million). And in March last year it increased its stake in Energy Developments to 19.9%, bringing its total investment to $110.4 million. The companies Infratil invests in have also been active investors, with its 66%-owned Wellington airport announcing a $76 million makeover; Trustpower committing to build the $175-million stage three of its Tararua wind farm; and Energy Developments announcing A$250 million worth of new generation projects.

Current strategy: Infratil's acquisitions are weighing on its most recent results and it effectively made a loss in the -December quarter. While net profit for the nine months ended -December, -excluding asset sales, was $13.1 million (down from $20.2 million in the same nine months a year earlier) that was down on the $14.7 million reported for its first half. But the company pointed out its results also suffered initially when it switched from electricity distribution to "what was then lower cash earning energy generation and airports. The wisdom of this swap is apparent." However, the results also showed an acceleration of the trend of Glasgow Prestwick losing freight volumes, essentially because a large number of Scottish businesses have relocated to cheaper places to operate. The airport's passenger growth from budget airlines has been impressive, but it is struggling to turn this into revenue and profits. Under Forsyth Barr's Rob Mercer's worst case scenario of flat freight and passenger volumes from 2009, he estimates $55 million - or 25 cents a share - could be wiped off his valuation.

Analysts' recommendations: ABN Amro and Mercer rate the stock a buy while First NZ Capital's Rob Bode and UBS New Zealand's Wade Gardiner are neutral. ABN Amro's 12-month target is $4.85 while Bode's is $4.30 and Mercer values the stock at about $4.37. While some analysts rate Infratil's management for its track record, others think the competition is much greater in finding new investments.

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