HICL now at a discount

[meldrewlives]

I see that HICL has just dipped into discount territory and there is an update to the Service Continuity guidance:-

http://www.londonstockexchange.com/exch ... 10345.html

Anyone considering buying in or is there too much uncertainty?

[flyer61]

I think the announcement means they are still trading at a premium to the soon to be adjusted down NAV. How much more the share price will adjust down I don't know. The confirmation of confidence in the ability to pay 3 years of divi's is useful.

On balance I would wait to see if you can get in closer to a 6% yield. If buying now you need a margin of safety until the Carillion issues are fully accounted for. Bad news normally comes in threes

[Dod101]

I see that HICL has just dipped into discount territory and there is an update to the Service Continuity guidance:-

http://www.londonstockexchange.com/exch ... 10345.html

Anyone considering buying in or is there too much uncertainty?

I hope you are not looking for comfort in numbers ie if sufficient people tell you that they think is a great buy you will follow

Personally I think you need to look at the valuation of the assets, not just the bald NAV and that flyer61 is right to sound a note of caution. I do not think we can discount just the Carillion fall out but we need to take account of the real political risk as well. I am getting out of shares with political risk (utilities and PFI) and buying into foreign shares either directly or via a fund.

Dod

[LittleDorrit]

Dod - As I see it there is no way of reliably valuing the assets (i.e. contracts) other than by sale in the secondary market - which as I understand it barely exists at the present time.

The N.A.V. is merely a black box number produced by the directors on a quarterly basis. All an investor knows for certain is that in the absence of further investments by the company the N.A.V. declines to zero on expiry of the current contracts in around 30 years time (See note 3.2. to the annual accounts). Since this is around 3x my actuariarlly assessed lifespan I will never get to find out.

I guess if I were to invest and a bit younger it would be on the basis of the annuity yield and without reference to the capital value. As others suggest maybe 6% would be O.K. and on the basis that the good old taxpayer is generally covering the future cash flow.

[LittleDorrit]

Yesterday I see that the forward yield flirted with the 6% level.

Share price 134.1p, forecast dividend for the coming year 8.05p ( R.N.S. 05/02/2018).

Is this now sufficient to assuage the political risk?

[gbjbaanb]

I've looked at these types funds and not invested. If Labour get a decent opinion poll lead, I could see these easily going to a 20% discount.

After the anti Semitic stuff going on at the moment, and the opportunities for the blairites to attempt yet another leadership challenge, etc, there's no chance of that.

[LittleDorrit]

I submitted this back in Jan 2016 on a HICL thread. What's changed since then?
The trust has moved from a discount to a premium and annuity yields have declined further.

Dod - As I see it there is no way of reliably valuing the assets (i.e. contracts) other than by sale in the secondary market - which as I understand it barely exists at the present time.

The N.A.V. is merely a black box number produced by the directors on a quarterly basis. All an investor knows for certain is that in the absence of further investments by the company the N.A.V. declines to zero on expiry of the current contracts in around 30 years time (See note 3.2. to the annual accounts). Since this is around 3x my actuariarlly assessed lifespan I will never get to find out.

I guess if I were to invest and a bit younger it would be on the basis of the annuity yield and without reference to the capital value. As others suggest maybe 6% would be O.K. and on the basis that the good old taxpayer is generally covering the future cash flow.

[Dod101]

Thanks. I had forgotten that and it helps to answer the general query that I asked this morning. I need to get my head round the accounting for infrastructure trusts.

Dod

[OLTB]

I am thinking of topping up my HICL holding but don’t know if that’s a good idea or not given the 13% premium to NAV.

Do any experienced IT investors know if this is just a current quirk with infrastructure or should I be wary?

Any comments appreciated.

Cheers, OLTB.

[mc2fool]

I am thinking of topping up my HICL holding but don’t know if that’s a good idea or not given the 13% premium to NAV.

Do any experienced IT investors know if this is just a current quirk with infrastructure or should I be wary?

If you go to https://www.theaic.co.uk/companydata/0P00008F9F/performance, click 10Y below the main chart and look at the bottom most chart, "Discount Cum Fair", you'll see that HICL has been at a notable premium for the vast majority of the time.

And it's not just HICL, the whole sector has been on a premium pretty much since the global financial crisis, so, no, it's not a current quirk but rather an ongoing one.

[Dod101]

Everyone loves the apparent security of their earnings in these troubled times.

Dod

[monabri]

I am thinking of topping up my HICL holding but don’t know if that’s a good idea or not given the 13% premium to NAV.

Do any experienced IT investors know if this is just a current quirk with infrastructure or should I be wary?

Any comments appreciated.

Cheers, OLTB.

Heres the track record on discount to NAV. over the last 5 yrs.

https://www.hl.co.uk/shares/shares-sear ... are-charts