Description

Executive Summary

Pantheon Infrastructure PLC (PINT), trading on the London Stock Exchange, appears as a strong defensive opportunity and good risk / reward given potential for: i) continued NAV organic total return of 8-10% (including 4% of NAV progressive dividend); ii) NAV valuation improvement from lower interest rates outlook (Bank of England and ECB have already began to cut rates compared to Q1 2024 NAV); iii) Reduction of current discount to NAV (24%), which is an historical outlier for Infrastructure funds.

IRR by the end of FY2026 appears attractive with a base case of 10% and a best case of 30%. A worse-case scenario should still deliver a progressive dividend with decent current yield ~5% while we wait for the share price gap to close.

Business Overview

PINT is a closed-ended investment company listed on the London Stock Exchange. Its primary objective is to provide investors with access to a diversified portfolio of high-quality global infrastructure assets. 

PINT achieves this by making direct co-investments alongside experienced private equity sponsors, offering investors exposure to typically illiquid infrastructure assets that would otherwise be inaccessible to public market investors.

Investment characteristics:

• Global Diversification: The portfolio is diversified across sectors (Digital, Power and Utilities, Renewable and Transportation and Logistics) and geographies, primarily focusing on developed markets in Europe, UK and North America.

• Focus on High-Quality Infrastructure: PINT targets assets with strong defensive characteristics, such as contracted cash flows, inflation protection, and conservative leverage profiles.

• Co-investment Strategy: PINT's unique approach involves co-investing alongside experienced high-quality sponsors (e.g. EQT, KKR), allowing for targeted deal selection and fee-efficient exposure.

• Long-Term Growth: Focusing on sectors benefiting from secular growth trends, such as the transition to a net-zero carbon economy and the digitalization of society.

• Inflation Protection: Investing in assets with inflation-linked revenues or implicit protection through regulation or market position.

Experienced Management: PINT benefits from the expertise of Pantheon Ventures, a leading global private markets investment firm with a proven track record in infrastructure investing. Their deep industry knowledge and extensive network enable access to high-quality investment opportunities. Pantheon charges a reasonable management fee at 1.0% of NAV.

Investment Portfolio

As of March 31, 2024, PINT's portfolio comprised 13 investments with a total Net Asset Value (NAV) of £504 million.

12 out of the 13 investments (Cartier Energy is the exception) have already been marked up vs original investment based on positive business developments.

Projected Cash Flows: PINT anticipates generating cash flows through both distributions from its investments and realizations from exits.

Conservative Debt: PINT investment portfolio employs conservative leverage at 36% of EV.

Valuation

PINT appears undervalued as its stock price of 83.2p can benefit from potential catalyst including:

Organic Growth: Management has guided to 8-10% total NAV return, including a progressive dividend ~4%. This trajectory has been confirmed at 10.4% in 2023 and 4.1% (over 12% annualized) in Q1 2024.

NAV valuation improvement from lower interest rates: PINT NAV per share valuation is based on a 13.6% weighted average discount rate which should come down based on the outlook for lower global interest rates. PINT published NAV sensitivities as of December 31, 2023 where a 0.5% decrease in the discount rate assumption would increase the NAV per share 4.7p while a 0.5% decrease in interest rate assumption would increase NAV per share 2.1p.

Reduction of current discount to NAV: Current discount to NAV (109p or 24%) is very wide compared to Infrastructure Publicly Listed Funds historical averages below 10%. This discount appears unwarranted as PINT 13 acquisitions happened in a tight 2022 and 2023 market with high interest rates and limited transactions. PINT has also commenced a share buyback program to help reduce the gap and can dedicate future asset realizations to this objective.

Base Case Scenario (10.2% IRR. 8% NAV total return, No reduction in Price to NAV discount, No interest rate cuts)

Best Case Scenario (29.8% IRR. 10% NAV total return, Price to NAV discount to 10%, 2% interest rate cuts)

Risks

• Economic downturn affecting digital infrastructure, utilities and renewables and transportation and logistics

• Further increase in price to NAV discount gap

• Future interest rates increase

Catalyst

• Reduction in interest rates driving NAV valuation increase

• Strong realizations leading to buybacks reducing share price to NAV gap

• Continued NAV total return at or above 10% top of management guidance range