Transportation has dominated the performance of Quaero’s infrastructure strategy over the past four weeks, with the largest sectoral exposures diversified infrastructure companies (17.3 per cent), toll roads and tunnels (16 per cent) and rail & bus (12.8 per cent).
The best performing sectors in April were satellite (up 9.2 per cent), airports (up 5.8 per cent), and toll roads/tunnels (up 5.3 per cent).
The only two infrastructure sectors which lost ground in April were agriculture (down 1.3 per cent) and electricity transmission and distribution (down 1 per cent). The positive performance was broadly based with 83 per cent of holdings gaining during the month.
With a 22 per cent growth in transponders forecast over the next two years, the major satellite operators are suffering from overcapacity. One beneficiary of this is Speedcast International, which was up 9.1 per cent for the month.
It has recently made a major, transformative acquisition which has added market share to its most buoyant industry, cruise ships. It is also heavily exposed to offshore energy exploration and production, but with this sector potentially bottoming out, the next few years could be good for Speedcast.
Airports are also performing well; the strategy’s allocation was up 5.8 per cent. The major contributor was Spanish operator Aena. First quarter results exceeded expectations with EBITDA up 6.5 per cent, mostly due to progress in the aviation division.
Spanish volume growth was 7.1 per cent and London Luton was up 18.2 per cent. Operating cash flow should rise 16 per cent this year, unlike most of its competition which continue to experience heavy capital expenditure.
Among toll roads and tunnels, Eurotunnel was a standout performer gaining 6.9 per cent. The company has impressed with the resilience of their business model, which is well-placed under most Brexit scenarios. Vinci was up 5.1 per cent and Eiffage was up 5.9 per cent.
The strategy’s infrastructure services and construction allocation was up 4 per cent. Ferrovial was the major contributor, up 4.1 per cent. Sterling weakness has been offset by better than expected earnings at Heathrow airport, the consolidation of its Broad-spectrum acquisition in Australia and excellent traffic growth at all of its key toll road concessions.
The multisector allocation was led by Cheung Kong Infrastructure Holdings, which was up 11.7 per cent. After a long wait, the Australian regulators approved its takeover of DUET, one of Australia’s leading energy distribution and gas pipeline operators. This should have a 5- 6 per cent positive impact on 2018 earnings.
In addition, the prospect of higher inflation in the UK should have a positive effect on its UK utilities holdings such as Northumbrian Water and UK Power Networks, which have regulatory frameworks that allow tariffs to account for increased inflation.
Amongst communications stocks, Illiad is accelerating its network roll-out both in mobile and its fibre network, which should enhance the quality of its services, support increasing subscriber growth and better mix, and move the business to a fixed cost model.
Price competition is finally stabilising in the French telecoms market. The absence of legacy businesses (fixed voice, international traffic, SMS and roaming), a strong exposure to consumer mobile data and excellent growth prospects with a conservative balance sheet make Iliad our top pick of European telecom infrastructure providers.
The strategy positioning is risk taking at present with cash at 2 per cent. All stock positions can be liquidated in one day and all major FX exposure is hedged.