Page 11 - DIY Investor Magazine | Issue 40

The majority of BBGI’s debt is on the portfolio level, with
no structural gearing at the trust level. What is particularly significant here is that 55 of the trust’s 56 holdings have fully amortizing fixed rate borrowing costs, with no refinancing obligation. This means that higher rates have had no impact on the borrowing costs for these investments.
The one remaining portfolio company does face a refinancing obligation for a tranche of debt in Q3 of next year. However, the managers have hedged out the risk of a change in base rates for this amount, meaning the risk only pertains to the lender’s margin in excess of the base rate.
‘THE TRUST IS IN A POSITION WHEREBY IT COULD MAKE NO MORE INVESTMENTS AND STILL PAY A RISING DIVIDEND FOR THE NEXT 15 YEARS’
BBGI did use its revolving credit facility (RCF) to make two investments in 2022. However, this was expected to have been fully repaid by the close of last year from excess cash BBGI has generated from its portfolio. Assuming that was the case – BBGI’s results are out later this month – it illustrates the trust’s ability to grow organically and the fact it does not need to go and raise funds from the market.
Another key and related point is the fact that the trust does not have any obligations to invest, meaning it is not in a position where it will become a forced seller to meet such obligations. In fact, the trust is in a position whereby it could make no more investments and still pay a rising dividend for the next 15 years.
This is a reflection of the fact that BBGI pursues disciplined growth that builds shareholder value first, encouraged by an internal management structure, and not growth in assets under management for its own sake.
Taken as a whole, we think this means BBGI offers attractive defensive features, which mean the trust can continue to pay a sustainable, rising dividend over the long-term, that is heavily protected from the risks of an economic downturn or higher refinancing costs.
The trust is also shielded from inflation due to the inflation- linkage in its contracts.
Indeed, if inflation does continue to run higher then BBGI can actually benefit from an increase in its underlying revenues.
At the same time, the trust enjoys potential upside from lower inflation and potential rate cuts.
If we do see these later this year, it’s plausible the trust would see a tightening of its discount – currently at 13.3% - as investors start to find the nearly 7% forward yield more attractive than it already is.
View the latest research note here >
11
April 2024
DIY Investor Magazine ·
Disclaimer
Disclosure – Non-Independent Marketing Communication This is a non-independent marketing communication commissioned by BBGI Global Infrastructure.
The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.