John Laing Infrastructure takeover reduces investor choice

A takeover bid for the John Laing Infrastructure investment trust is set to reduce choice for investors in the closed-ended subsector.

The board of the infrastructure investment trust has indicated shareholders should accept the takeover bid from Dalmore Capital and Equitix Investment Management, according to a regulatory filing published on 16 July.

The offer of 142.5p represents a 20.6% premium to its share price at the close of play on Friday. It is a 16.9% premium to the investment trust’s net asset value.

The listed asset class will shrink if shareholders accept the offer and retail investors will face less choice in the sector, said Chelsea Financial Services managing director Darius McDermott. “It is a £1.2bn trust; that’s a significant vehicle.”

Currently there are seven investment trusts in the sector representing assets of £10.1bn; however, Sequoia Economic Infrastructure Income and GCP Infrastructure are debt funds and BBGI is a mixture of debt and equities.

Both Dalmore and Equitix manage assets for institutional clients.

Is it attractive?

Winterflood Investment Trust research analyst Emma Bird says the majority of shareholders are likely to welcome the cash offer, but says John Laing Group could take a different view. It received an investment fee of £12.6m from the fund in its last financial year.

Bird said the premium is equivalent to several years of returns and the fact that it removes political risk to shareholders is not insignificant.

The sector sold off in September last year due to remarks made by shadow chancellor John McDonnell that the Labour Party wanted to nationalise industries such as railways and water. Carillion’s collapse in Q1 added to discounts in the sector.

McDermott said the initial opportunity of getting infrastructure at a discount has gone. While he said an offer that instantly switches the share price from discount to premium is attractive, he noted the investment trust had traded at similar premiums in the past.

In August 2016, before McDonnell’s comments, the investment trust was trading at a 24% premium.

Roller coaster sector

Bird said the bid illustrates the value in the infrastructure sector.

“Could this be the start of further bids for infrastructure funds across the subsector? It is not an impossibility, but we think that John Laing Infrastructure stood out because of its size and discount,” Bird said.

The investment trust discount was 3.7% at close of play on Friday, according to the Association of Investment Companies.

HICL Infrastructure is the largest investment trust in the sector holding £2.6bn. It had been the only other infrastructure investment trust trading at a discount with its share price 2.2% below NAV. It has rallied 4.2% on news of the takeover bid.

“For an asset class that is meant to generate steady, consistent returns, the infrastructure sector has done a passable impression of a roller coaster over the last 12 months,” Bird said.

McDermott said he prefers debt for exposure to infrastructure, stating funds like GCP had been less volatile in response to the Labour Party’s nationalisation plans.

The sector is currently yielding 5.2%, according to the AIC.

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