Pantheon Infrastructure PLC (PINT) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Pantheon Infrastructure PLC Half Year '24 Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during today's meeting. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you could give that your kind of attention, I'm sure the company will be most grateful. And I'd now like to hand over to the team from Pantheon Infrastructure. Ben, Richard, good afternoon.

Good afternoon. Great to be here with you all today. So what we wanted to do is I'll just give a quick intro to Pantheon Infrastructure. Few disclosure and important notices before we start going properly. So I think many of you will be familiar with Ben and myself, you can see on screen. We've also been recently welcomed Xiyue Xu on to our team. She was previously a transaction consultant at Arup. She's really got stuck into the interim results, and so had lots to get on with, since she started with us. Just an outline of what we're going to be talking about today. I'll give a brief summary of PINT, Pantheon Infrastructure PLC, I'll talk about the approach of the company. And then we'll move into kind of the financials and a bit of a deep dive on the portfolio before just wrapping up quickly with a quick canter through with our deal flows and summary conclusion thereafter. So a quick reminder of what we do here at PINT. So strategy is very much to create an access to a diversified portfolio of pretty much core plus infrastructure assets. So that's a little bit different maybe to some of the other infrastructure offerings out there. We're looking to generate returns over the long term through both yield, but probably more importantly, growth. We have a strong focus on downside protection, that's something that's really looked at closely by committee. We target assets with both contractual or regulated underpinning, and we also look for assets, which demonstrate some form of inflation linkage. In the middle box there, targeting an 8% to 10% total NAV return. We're pretty excited with where we're tracking, and we'll come on to that in a minute. In terms of dividend, 4p last year, targeting 4.2p this year. That represents about a 5% increase, and that's something the Board were keen to do. And again, we'll talk about that in a minute. Our model is to hold assets for the medium-term. So what we think about is typically around about a 5-year, 5- to 7-year time horizon and that really aligns with the time line that -- the sponsors that we're working with, are working to. Quickly on the Pantheon platform. We've now got AUM of over $21 billion. We've got investments in approximately 1,500 assets, with about 50 different sponsors. So we've got a pretty wide visibility on the infrastructure world, which I think is a key differentiator for the business. And we continue to grow as a platform, we've committed across sort of private -- on the private side of our business, about $3 billion last year. And then finally, PINT is our second investment trust. We've got a nod to our big sister in PIP, which was launched 35 years ago and has an NAV of around about GBP 2.5 billion. Quick highlights for you in terms of where we are. And we're really quite excited about what the company has delivered this last year. We've seen the NAV increase to 113.9p, that's driven predominantly by portfolio valuation increase. That's up from about 101p last June, and at the full year, almost 107p. We've hit on NAV total return of 8.5% just for the interim period. So already within our 8% to 10% target range, and we're only halfway through the year. I talked about the dividend increase to 4.2p. The first interim dividend will be paid later on this month, 2.1p. And that's something the Board has considered very carefully in line with dividend cover as well as the portfolio performance and where it is against its targets. Ben is going to take you through a bit more detail on the numbers. But really, that valuation performance is driven by both top line and also by EBITDA growth across the portfolio. We've seen about a 33% increase year-on-year. So again, some great performance coming through. Portfolio sits on a 1.2x multiple. So that's what we've done is effectively netted off the hedging impact for each of the assets. So it's akin to a hedged money on invested capital. This is really a proxy for the underlying deal currency money multiple. The RCF remains undrawn, and we're pretty cautious about how we're going to be using that. Again, Ben will touch on the balance sheet a little bit later. So just switching gears, quickly, what are the characteristics of infrastructure where you can see the benefits across the top there. I'm not going to take you through all the key reasonings around infrastructure. But as an investor, clearly, what do you get access to, you get access to attractive yield, you get access to predictable cash flows. Good, strong portfolio diversification and obviously, these are hard to access assets typically in a portfolio. Again, what are we looking for in transactions. Those are familiar with PINT will have heard about this before. We're typically looking for GBP 25 million to GBP 50 million tickets right now, obviously, without a foreseeable way to access capital in the capital markets, with our capital broadly fully utilized, we will not be investing in the foreseeable future. We're looking to target all those four subsectors, you can see on the right-hand side. We have excluded social infrastructure, which we did have at the time of launch, but we've not really been able to find any opportunities in that subsector. Just a quick double-click into the co-investment model because it is a slightly different access point maybe to some of the other groups out there. This co-investment allows us to target specific assets. So we're not taking any blind pool risk that you might get with investing in a fund. We can tilt the portfolio where we want to, so we can look for the best risk-adjusted returns at any point in time. We're taking minority equity positions alongside some of the strong blue-chip sponsors that we work with, who are incentivized alongside us, given that they're entering at the same time as us. Through the Pantheon platform, through the wider platform, we typically get access to these deals on a fee and carried free basis. So that means that there's a very cost-effective way to access the infrastructure asset class. And there are no performance fees or carried for our vehicle either. So all you suffer the 1.5% total ongoing charges. So just quickly looking at the portfolio before I hand over to Ben. So you can see here we're diversified across both geography, across sector and across the market segments and sponsors. Really no main changes in this since we last reported at the full year. The main impacts have been increases in valuations across Calpine, CyrusOne and Vantage in particular. And so that's increased our exposure to North America and to digital and to power and utilities. We've also committed about GBP 6 million of capital to CyrusOne and Delta Fiber, out of those prior commitments, but this doesn't move the exposure that we've previously factored in. So that's it for me. For the time being, I can hand over to Ben now.

Thank you very much, Richard, and good afternoon, everybody, and thank you for finding the time to join us today. So just to give a quick overview of how the NAV has moved in the 6 months. So we started at the 106.6p per share, you can see at the end of last year. That's now gone up to the 113.9p. The main driver, as Richard just alluded to, is the fair value gains of the revaluation of the portfolio. Some particular drivers there have been, as Richard mentioned, Calpine, which is a North American power producer as well as some of the digital assets we're invested in, namely Vantage and also CyrusOne, big players in the data center space. And then also some uplift from National Broadband Ireland. This is the Ireland's rural fiber plan. and also GD Towers, which was the carve-out from Deutsche Telekom last year, alongside Digital Bridge of around 40,000 towers. So really, really pleased to start seeing and to continue seeing the valuation gains on those assets. We've also seen broadly flat movement from FX. The intention of our FX hedging policy is to minimize, not entirely eliminates FX exposure with the majority of the portfolio being non-sterling currencies, so a lot of U.S. dollar and euro, we felt that's prudent to make sure that we can mitigate the noise of FX. And you can see from the two columns there that it's pretty much doing exactly what we intend it to do. And then expenses of 0.9p. This actually also includes financing costs. So with the RCF, we pay a 1% commitment fee, and it also includes over the term of the facility, the amortization of some of the upfront costs, namely the arrangement fee and also legal fees. You can also see that in the 6 months, we now have increased by 0.2p from share buybacks, as I'm sure many people will be familiar with, this is quite a common theme or common occurrence across the sector right now. The Board committed to a GBP 10 million buyback program last March. By the year-end, we've done around GBP 8.5 million of that. So the Board committed to topping that back up to the GBP 10 million, I mean, we've had fairly minimal buyback action since then, albeit we retain that amount on the balance sheet for the occurrence of potential future buybacks. And then the final chunk, you can see is a dividend of 2p, which was in relation to the second interim dividend paid in respect of 2023. There's a bit of information on year-to-date movement on the portfolio, I'm actually going to skip over this because we have a more detailed attribution a bit later on. Instead, we're going to have a quick look at the company's balance sheet. As Richard mentioned, we've got an RCF that's entirely unutilized right now. We think it's fair to say, we're sitting fairly pretty and have a very robust balance sheet in the sense that we don't have to focus on deleveraging because we haven't got it geared balance sheet. We have around GBP 125 million of on-hand liquidity. The way we think about apportioning that is that we net off commitments of GBP 9.9 million, which is the amount that we've committed to deals that hasn't yet been called by the sponsors. And then we also, as you can see, again, the GBP 9.9 million figure below that, which is for the share buyback program. We consider that akin to an investment commitment and make sure we ring fence that from the available capital that we have. The items you can see below buffers, we don't really think these are real-world scenarios, but these are largely driven by the institutional risk thinking that we have as an organization. We keep some money back for co-investment buffers, this is sized at 5% of the aggregate commitment we've made to deals across the portfolio, and it's essentially rainy day capital. We don't expect or dare I say, intent to use that capital anytime soon, but we'd like to make sure it's there, for that rainy day occurrence. And then we also have, I guess, the more material figure there is the GBP 14.7 million FX hedging buffer. Again, this is a function of the fact that we've got some fairly large notional hedge positions because of the euro and U.S. dollar transactions we've hedged. This is to cater for the event that should there be margin calls on those particular deals where there to be significant volatility in FX markets. So the net of all that leaves us with that GBP 38.1 million that you see at the bottom. In theory, this could be considered investable capital. But I guess given what Richard mentioned, and the fact that -- at the moment, we don't have that visibility of being able to raise equity to pay down an RCF. It's not necessarily our thinking that we would go and deploy that in new investments. What could potentially change that is if we were to have increased visibility on near-term distributions or indeed an asset realization, so were there to have been a contractual agreement to dispose of an asset that might be subject to certain conditions, precedent or certain regulatory approvals that might be the kind of time when we start thinking about using the RCF as a bridge to those kind of exit proceeds. Looking now at the portfolio. So there's a couple of figures here that those who are familiar with the alternative space will probably be able to relate to. The first one being the weighted average discount rate. Safe to say this is very much an outlier versus the rest of the infrastructure and renewables space. This is a function of the fact that PINT is investing in companies that are further up the risk curve. We've got a very deliberate focus, an orientation on growth geared companies. They are companies, so they are platforms that will deliver things like data centers or fiber. So it's not like stand-alone SPVs that only own one asset. So these companies do have employees, they've got a C-suite, but the focus of them is typically to deliver against growth within the sectors that they operate. We've also put here the weighted average gearing, so this is done on a net debt to enterprise value basis. And also the weighted average hedge debt, I think the theme here is that we are really focused on having disciplined balance sheet for the companies that we invest in. We don't want them to be overgeared, and we don't want to carry undue risk in terms of interest rate and floating rate exposure. Below those three figures, we've got some of the underlying metrics across the 13 assets. So the way that we've calculated these is we've taken from the relevant portfolio company and weighted it by PINT shareholding. Clearly, really encouraging figures. We've seen 12% growth in revenue and a 33% year-on-year growth in EBITDA. Now EBITDA for the uninitiated, that's earnings before interest, tax, depreciation and amortization. Why do we focus on this? Well, it's generally considered to be a very pure metric for judging one company against another. Effectively, it's the net of its cost of goods sold and its revenues. It also has the benefit of filtering out factors such as the relative gearing of the company or the tax, jurisdictional issues like tax. So this is why we focus on EBITDA. Clearly, that 33% is really encouraging. We think it's an endorsement of the fair value gains that we've seen. And it speaks again to that focus that we have on investing in companies that have significant growth potential. Finally, here, we've got the weighted average CapEx that's been deployed over the last 12 months. So this is GBP 50 million versus GBP 30 million last year. That's typically what is driving, certainly, when you look at the CapEx-intensive businesses, like some of the digital assets and that is what's driving that growth. We always go to great pains to say that when we're backing these businesses upfront, we like to make sure they've got all the capital they need to deploy that CapEx. So that's typically three strands that would be operational cash flows on their existing assets. It would be those additional headroom equity commitments like I mentioned on the page before that GBP 10 million we hold back, like we actually drew on CyrusOne and Delta Fiber during the period. And then the final consideration would be making sure they've got in place their debt facilities upfront. It's not to say companies during our hold periods or expected hold periods won't be seeking further capital should they be able to outperform their business plan. But typically, we want to make sure that their base case is funded when we go in upfront. So looking now at the actual 13 portfolio assets that we've invested in, I won't go through line by line. It's probably better to observe some themes. We were very active investing post-IPO. So the IPO was November '21. The final deal was earmarked around early Q2 last year, so it was around 15 or 16 months to essentially become fully deployed. And we're really pleased, as Richard mentioned, both from the geographic diversification as well as from the sector diversification, particularly when you think of those 7 digital assets is having some very distinct features. So starting with data centers, we're back two principally American platforms, albeit CyrusOne does have a global footprint. What's been really interesting about this sector is that when we originally underwrote these deals back in 2021, 2022, AI wasn't really consider a thing. The investment thesis for these deals was the significant demand arising from simply cloud computing with the hyperscaler counterparties we work with. Obviously, things have changed significantly in that time, which has been in PINT favor and the investor's favoring these sectors, which has meant that they're seeing significant more demand for data center capacity than what we've even foreseen previously, which is driving certainly in the case of CyrusOne outperformance. We also saw additional capital go into Vantage during the period, they did a fundraise with Silver Lake Capital Partners and DigitalBridge, the sponsor we have co-invested in, which we think, again, it's a testament to the significant growth opportunities here. In terms of fiber, we've got three quite unique fiber businesses. What we're typically focused on when we're looking at fiber businesses is ones that have little potential for overbuild risk. So they're not going to be competing at like-for-like physical fiber infrastructure. And that's particularly possible with NBI and Delta Fiber. And GlobalConnect is a more mature business that we came into, that was one that has very high penetration in the Nordic markets that it operates in. We did have a few questions around why this has been flagged as below plan. As there's been some challenges in the German fiber-to-the-home market, which we'll perhaps cover a bit later when we go through the Q&A. In terms of towers, the thesis for these two transactions was that they both got very significant operations and are able to deliver a sizable build-to-suit profile. So when a mobile network operator comes to them, and seek access to a tower and certain coordinates and a certain specification, they're very adept at being able to deliver that. And similarly, you can augment those business plans with some M&A activity. And we've actually seen -- been very encouraged recently on the Vertical Bridge, they saw they'd announced the acquisition or the terms agreed for the acquisition of a very large portfolio from Verizon. Again, we had some questions on this, so we'll perhaps address when we get to the Q&A. And I touch upon power and utilities. So it won't be lost on people that the largest driver of value or the valuation increase has been Calpine. It's been an extremely favorable trading environment for North American power utilities companies essentially, they're capturing far higher merchant prices than they were expecting when we entered this deal 2 or 3 years ago. That's kind of been an adjacent benefit of AI. The projections for power demand in North America relative to where they were 2 years ago are materially different, which is very encouraging for a company like Calpine. And we've also invested in National Gas. This is the U.K.'s backbone gas network, and we also expect that will play a significant role in decarbonizing by the rollout of the Backbone Hydrogen network. And then Cartier Energy, which is a North American district heating platform. It's had a few challenges. It had some exposure to merchant prices on one particular contract. It had a milder winter than expected upfront, but we're pretty confident that they're through the worst of that, and the management shift now is on growth initiatives. And finally, just a quick word on renewables and energy efficiency. These are not kind of renewables in the sense of wind farms or solar farms. These are companies that operate more predominantly in the energy efficiency space. Fudura's core business is leasing medium voltage transformers to SMEs in the Netherlands, and it's now developing adjacent products, which are like behind-the-meter storage, smart meters and also EV charging. Zenobe we have another question on this to address later. That's got two distinct business segments. One is the electrification of bus fleets and the other is network infrastructure, so grid-scale batteries that operates internationally, which again diversifies the kind of revenue mix, and really excited about the prospects of both of those companies. And then finally, Primafrio, which was the first deal that we announced. This is the single transport and logistics business that we've got. It's a cold chain logistics and storage business. It takes fresh fruits and vegetables from the Iberian Peninsula to Northern European markets. Doesn't benefit from long-term contracts, but it does benefit from long-term customers. So a slightly different model to potentially the rest of the portfolio, but one that we think has a very strong competitive mod. Quick look now at the attribution that I mentioned earlier. So the way we think about the portfolio of fair value gains, we think about the core performance, which is delivered as a function of having that very high discount rate. So as a business on ones that discount rate and its valuation is doing so as it's derisked its business as it's kind of achieved its plans for that period. That's contributed around GBP 34 million. When you add up the aggregate of the next 5 taps, they've added about GBP 11 million of additional outperformance, which we're naturally very pleased to see. There's a couple of different drivers to that. The net impact of discount rates up and down is pretty much flat. We've seen about GBP 3 million benefit from increased actual performance of capturing higher power prices, for example. And then there's around GBP 7.5 million of valuation uplift just through revised forecast. So that will be revised forecast and distributions during the whole period, and then also a change in the terminal value of the business as a function of its terminal earnings. Final slide for me is a quick word on the portfolio cash flows. So at the year-end, we provided a bit of a glimpse into what the distribution and realization profile across the portfolio looks like. This is something that a lot of investors are all kind of very keen to understand. And obviously, there's a natural implication to dividend cover here. And what we've done for the interims, we've prepared a revised case. So we're always getting pretty much in real-time revised expectations of distribution from companies. Similarly, the actual exit horizon can also have to change or certainly the potential to exit multiples can also change. What we've actually seen versus the figures that we came to market with in April versus the figures we released last week is around a 40% increase in estimated distributions just for this year alone and around 10% next year. What this ultimately means is that we're expecting owning a slightly uncovered dividend for 2024 and thereafter, north of 1x dividend coverage going forward. I think, one thing to flag and it's a bit of a disclaimer is the fact that ultimately, the nature of co-investment means that we don't dictate the distribution policy. As Richard mentioned, we take a minority interest. We get satisfied with the intentions of the company upfront. But ultimately, we don't hold the purse string. So we can't absolutely guarantee that cash flows will materialize like this, but what we're presenting to you here is what we feel with a fairly high degree of certainty will materialize in the coming years. So with that, I'm going to hand back to Richard, who's going to talk through some of the opportunities we've seen in the last year.

Thanks, Ben. So just quickly on deal flow. You can see on the left-hand side, our deal funnel chart, we shared this at IPO, and we share this in each set of results. On the platform, we continue to see a lot of capital closing doing co-investments, but unfortunately, with PINT it is sitting outside of the waterfall for the reasons that Ben mentioned. Great deal flow that we're seeing and kind of a selection of different opportunities there, just to give you a sense of some of the opportunities that could have been available for PINT and how that had capital availability. We are looking at all these deals at committee, I'm one of the seven global infrastructure and real asset investment committee members. So we do look at these and are making investments into a number of these assets on behalf of all the clients. As you can see, about GBP 400 million this year alone. So extremely frustrating for me as the PM of PINT and also as a shareholder of PINT, I'd love to be able to see some of these deals going our way. There's pretty good diversity in terms of the types of deals, either by sector or by geography. And you can see there the majority are kind of core plus orientated, so giving us that nice growth opportunity and aligned with the rest of the portfolio. I think one of the key differences we're seeing is probably some more transportation opportunities, again, post-COVID, we've seen a little bit more of a pickup of opportunity set there. Obviously you can see there's an airport transaction, for example, that we've been taking a look at. We will look very carefully at GDP exposure. We laid that out at IPO and that continues to be a key focus. We don't want to take unmitigated kind of GDP exposure. So some form of regulatory underpinning or some contractual protections around taking naked GDP exposure, especially where given, I think, the uncertainty in the macro and geopolitical backdrop right now. Deal flow is also especially good right now. I think as we think about some of the limited partners in funds, they've had a significant lack of distributions over the last 3 to 4 years. That's across private markets more generally. So what that means is they're overallocated to infrastructure. And so a number of them are not taking up their co-investment rate, so there's even more co-investment available for those with capital availability. And look, the wider platform that we've got gives us great visibility on these opportunities and gives us that ability across those circa 1,500 assets to compare and contrast where we're seeing business plans outperformed or underperformed on other assets, we can take those learnings and take it to other assets. So ultimately, what does that mean? Well, when the markets are constructive or when has been laid out, we see some realizations coming from the portfolio. We've got that ability to drop PINT back into the waterfall and execute on deals relatively rapidly. So just before we wrap up, I thought I'd maybe try and leave just a few key messages for you and some of the things, I think, to focus on and think about. So firstly, we think PINT provides a great access point cost effective to a really diversified and resilient portfolio of assets. We've got a great pipeline and opportunity set in the infrastructure market. And I think we're really uniquely positioned to be able to capture some of that deal flow without that economic leakage that we talked about earlier. We've a great NAV return, 8.5% total NAV return, which is well within the 8% to 10% target, and that's just with half a year under our belt. We had strong EBITDA performance, 33% year-on-year and we increased the dividend with the first interim at 2.1p being payable later this month. Strong balance sheet has been laid out. We don't have any expensive drawn debt. We've got no pressure to dispose of assets, we're sitting very comfortably and we've got that facility to provide an effective risk buffer provisions. We've got a little bit of firepower for the buybacks. So there's just under GBP 10 million. They're available should be limited, natural buyers. And it's also a great way as we've seen in our previous results to invest in the existing portfolio that we know and love and increase the NAV through acquiring the existing portfolio. And then finally, and not least, we are, as a reminder, SFDR Article 8 classified. We released our second sustainability report in June. We've adopted a scorecard methodology and are integrating sustainability into our investment processes. There's a lot of detail in there. I hope you have a chance to take a look and see what we've been up to.