The Tip Sheet
With interest rates expected to fall later in the year, The Times asks: is now a good time to look at the infrastructure sector? Elsewhere, will Schroder’s Real Estate Investment Trust’s green credentials be a deciding factor when sentiment turns?

By
Frank Buhagiar

Questor: Buy this fund for at least 15 years of rising dividends
BBGI Global Infrastructure (BBGI) as caught the eye of The Telegraph’s Questor Column, but why now? Share prices have tumbled in the infrastructure sector, triggered by rising interest rates which have made cash and bonds more appealing for income-focused investors. But with interest rates expected to come down later this year, Questor believes now could be a good time to take a look at the sector and specifically at BBGI which runs infrastructure assets such as toll bridges, roads, hospitals and prisons in G7 countries. And, it does it well – since launch in 2011, BBGI has generated a total return of 170.8%.

Questor is particularly drawn to BBGI’s shares because of the “attractive, government-backed 6pc yield and the potential for capital growth as they languish 13pc below the value of the fund’s assets”. And according to Questor, BBGI is “the least risky fund in its sector.” That’s because, unlike its peers, BBGI does not invest in economically exposed assets, such as water companies. Instead, its assets are 100% availability based so to get paid it just has to ensure the facilities it manages remain available for use. How much the fund earns therefore does not depend on how many people use the assets or what the regulator says it can charge. What’s more, revenues are inflation-linked and based on long-term contracts, giving the fund’s revenues a high level of visibility. Because of this, the company is able to claim that “without further acquisitions the current portfolio could increase dividends for the next 15 years before starting to wind down and repay capital to shareholders.”

In conclusion, Questor believes BBGI “offers the potential for strong share price recovery if interest rates fall and enhance the appeal of its payouts. This is a high quality, inflation-linked income fund that invests shareholder capital wisely.”

MIDAS SHARE TIPS: Property firm Schroder Real Estate Investment Trust building a green and clean empire
According to The Mail on Sunday’s tipster, Schroder Real Estate Investment Trust’s (SREI) strong green credentials make the fund stand out from London’s REIT crowd. True, that’s not been enough to prevent the shares from being caught up in the sell-off that has hit the sector in recent years, but it could be enough to position the company well for when sentiment takes a turn for the better.

For management’s strategy to green the fund’s properties by, for example, making use of renewable energy and more efficient boilers makes sound business sense. Not just because regulations due to come into force by 2030 will require landlords to reduce their properties’ carbon footprint, but also because tenants, themselves under pressure to meet their own sustainability targets, are prepared to pay higher rents for buildings that are ‘green and clean’. What’s more, energy-efficient properties have cheaper running costs, thereby offsetting the higher rents charged. By seizing the bull by the horns SREI’s shares, now 42p, “should respond.”

And then there’s SREI the value play to consider. An independent valuation estimated the fund’s portfolio to be worth around £458 million, more than twice the current £200 million cap. As Midas concludes: “Schroder REIT has been hit hard by widespread antipathy towards the property sector but sentiment should change and Schroder shares should rally. At 42p, the stock is a buy, while generous dividends add to its appeal.”