Transportation dominated the performance of QUAERO’s infrastructure strategy over the past four weeks. The largest sectoral exposures are to the diversified infrastructure companies (17.3%), toll roads and tunnels (16%) and rail & bus (12.8%). The best performing sectors in April were satellite (up 9.2%), airports (up 5.8%), and toll roads / tunnels (up 5.3%).
The only two infrastructure sectors which lost ground in April were agriculture (down 1.3%) and electricity transmission and distribution (down 1%). The positive performance was broadly based with 83% of holdings gaining during the month.
With a 22% 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% 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%. The major contributor was Spanish operator Aena. First quarter results exceeded expectations with EBITDA up 6.5%, mostly due to progress in the aviation division. Spanish volume growth was 7.1% and London Luton was up 18.2%. Operating cash flow should rise 16% 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%. The company has impressed with the resilience of their business model, which is well-placed under most Brexit scenarios. Vinci was up 5.1% and Eiffage was up 5.9%. In addition to their healthy concessions businesses, their infrastructure contracting operations are looking attractive. Backlogs are increasing and importantly, as older contracts close out, construction margins are growing.
The strategy’s infrastructure services and construction allocation was up 4%. Ferrovial was the major contributor, up 4.1%. 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%. 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% 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%. All stock positions can be liquidated in one day and all major FX exposure is hedged.
Notes to Editors
About Quaero Capital
Quaero Capital is an independent, specialist fund management firm which brings together independently minded investment managers who use original research to provide highly actively managed strategies for clients in the institutional and wholesale markets. Quaero Capital was founded in 2005 in Geneva as “Argos Investment Managers S.A." It is a 100% employee-owned company with its founding partners taking an active role in its investment processes. The firm is a team of 32 individuals including 16 experienced investors who enjoy working in an investment focused environment. Quaero Capital is regulated by the FINMA, the Swiss Financial Markets Authority. It offers a range of high conviction investment strategies spread across 12 funds in two Luxembourg SICAVs (a Part I-UCITS and a Part II).
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