Quite a few of you have been writing to me to find out some more information about the odds and sods funds I wrote about last week.
As you’d expect it’s not incredibly easy to dig up information about them so in this entry I’ve pasted in some information about the three ideas.
The Merrill Lynch funds are the most difficult to track down but you can find some useful information at www.definedfunds.ml.com. Just click on price information and you can get more details.
Here’s the summary of Colette Ord’s research paper – bear in mind that they do make a market for Babcock and Brown (I think), so do apply the usual caveats but I for one agree with her analysis.
“Having addressed a number of key issues, we reiterate our positive stance on Babcock and Brown Public Partnerships (BBPP) and suggest the shares should be re-rated. The fund has delivered an increase in NAV to 115p (up c5%) and lifted its DPS target to 5.55p. Furthermore, the current management team is proposing to buy-out the investment advisory contract from Babcock and Brown Australia (BBA). If approved, this should eliminate uncertainty over the ownership of the manager. We also highlight that BBA has sold its entire shareholding in BBPP (8.3%), clearing an overhang which had also weighed on sentiment. The shares offer best value in the sector in our view trading on a c18% discount with a prospective DPS yield of 6%.”
Results summary: NAV increased to 115p driven by the inclusion of new investments and operational progress on existing assets. The portfolio value was also enhanced by the impact of lower risk free rates and currency shifts. Annual DPS target increased to 5.55p from 5.4p, fully covered by operating cash flow. The fund has £32.8m of uncommitted cash, £42m of undrawn debt from a £100m facility; gearing remains low at 13.4%. If the management buy-out is approved by shareholders then it is also proposed that the company changes its name to International Public Partnerships.
Portfolio: 8 new investments were made throughout 2008 increasing the total within the portfolio to 50. 67% are operational, 33% are under construction providing both stable cashflow and capital growth upside. Investments are valued by the manager on a DCF basis using a weighted average discount rate of 7.95% comprising an increased average project premium of 3.96% and risk free rate of 3.99%; long-term inflation assumptions are 2.5%.
Valuation: The shares trade on an 18% discount to NAV, offering a prospective yield of 6.0% which compares with HSBC infrastructure (HICL) trading on a 3% premium to prospective NAV, yielding 5.7% and 3i Infrastructure (3IN) trading on a 20% discount to prospective NAV, yielding 6%. With similar portfolio characteristics and substantial valuation differences we suggest that a switch between HICL and BBPP looks attractive at current levels.
Finally the BarCap Water fund. I’ve pasted in the details from the term sheet issued last year on this 10 year note.
10 Year structured note linked to BarCap Water Portfolio
Date: 18th May 2008
Issue Date: 1st June 2008
UK Investor Solutions within Barclays Capital is pleased to announce the launch of its first sterling denominated Structured Note linked to a basket of water stocks. The primary objective of the Note is to generate a gross distribution yield of 8% per annum or more, along with the potential for some capital growth. This document is designed to highlight to potential investors the investment mechanism of this structured note.
_ Geographical diversification (Globally)
_ Exposure to water and water related companies
_ Target 8% p.a. gross yield paid quarterly after fees (the yield is targeted to rise with the index yield)
_ Covered call option overlay to generate additional income over the natural yield and to lower volatility
_ Potential for capital growth although this will be reduced by the effect of options overlay strategy
_ Daily secondary market (1% Bid-Offer Spread)
_ No cross-currency risk
How does this Note work?
This Portfolio is currently comprised of 15 companies of which, 80% are water companies and 20% are water treatment Companies.
Dividend yield from the Index
The current level of the average dividend yield of this Index is 3.32% (as of 30 April 2007, source: Bloomberg)
Enhancing the dividend yield
It is estimated that 3.32% p.a. will be derived from the Index of 15 stocks. 5.00% p.a. is then achieved via the call writing strategy, which involves selling option on the underlying Index. The current expected strike of the index will be 103% per quarter.
Portfolio composition 2007
VEOLIA ENVIRONNEMENT 10.00%
UNITED UTILITIES PLC 10.00%
SEVERN TRENT PLC 10.00%
KELDA GROUP PLC 10.00%
AGUAS DE BARCELONA-CLASS A 10.00%
PENNON GROUP PLC 9.93%
NALCO HOLDING CO 9.01%
NORTHUMBRIAN WATER GROUP PLC 7.78%
KURITA WATER INDUSTRIES LTD 7.72%
AQUA AMERICA INC 6.98%
SINO-ENVIRONMENT TECH GROUP 1.78%
CALIFORNIA WATER SERVICE GRP 1.88%
SJW CORP 1.52%
AMERICAN STATES WATER CO 1.44%
David Stevenson is also one of the Four Wise Monkeys at the online TV investment programme www.4wm.co.uk