‘Meaningful growth’ in 3i Infrastructure dividend expected

Investment trust 3i Infrastructure is likely to boost the amount of cash it returns to investors, an analyst has suggested, after the trust reported that its portfolio had continued to perform well and deliver a good yield.

The £1 billion group said that dividends and interest from its assets came to £14 million in the period from 1 October to 24 December 2011.

It also reported that its cash balance had shrunk to £136.2 million over the period, down from £319 million at the end of September, following its £195 million investment in electricity and heating units of Vattenfall, the Swedish power group.

3i Infrastructure managing partner Cressida Hogg said the deal was a ‘significant development’ for the trust, adding that it provided exposure to relatively low risk revenue streams with ‘inflation linkage’, as well as presenting opportunities for future growth.

‘We view the reduction in the cash drag as a positive and expect some meaningful growth in the dividend,’ said Iain Scouller, analyst at Oriel Securities, maintaining a target price of 115p and a ‘hold’ recommendation.

Iain Scouller estimated the trust – which has a yield of 4.9% – would declare a final dividend of 3.03p, with the payout to investors totalling 6p for the year, up from 5.72p in 2011.

In her management statement Hogg said the trust was focusing on bringing its Thameslink rail improvement programme ‘to a financial close’, and was developing the investment pipeline for the coming months.

Scouller also pointed to reports that the company – in which private equity group 3i has a 35% stake – was preparing a bid for Edinburgh Airport, but said it may be ‘some months’ before the auction reaches a close.

Shares in the trust edged up 0.1p to 120.1p following the statement – trading at a 2.6% premium to their net asset value (NAV), slightly narrower than their average premium of 3.1%.

The shares have taken on 37% in the past three years, while the trust’s NAV has climbed 51%.