3i posts annual results, prepares to go shopping

EBITDA growth of 11.2% and “robust” asset performance has left 3i Infrastructure with a war chest of £314m “to invest in a strong pipeline of opportunities”.

3i Infrastructure, in which the 3i Group owns a 33.2 percent stake, posted its annual results to March 31 2010 today.

The results show the listed fund has increased its earnings before interest, tax, depreciation and amortisation (EBITDA) by 11.2 percent year-on-year, with the portfolio generating income of just over £30 million (€35.6 million; $45.3 million).

Total return on shareholders’ equity increased to 9.3 percent from the 8.8 percent recorded in the previous comparable period. The increase was underpinned by an asset return of 17.5 percent, or close to £94 million, which 3i described as “robust asset performance”.

In the long-term and once it is fully invested, 3i Infrastructure proposes to deliver yearly total shareholder returns of 12 percent. That result is already “achievable based on asset returns from [the] current portfolio,” 3i said. Shareholders will be paid a dividend of 5.5 pence per share in line with the fund’s stated yearly objectives.

3i Infrastructure ended the year to March 31 with a £314 million war chest which it will use to make new investments.

Cressida Hogg, managing partner for infrastructure at 3i Investments, a wholly-owned subsidiary of the 3i Group which advises 3i Infrastructure, said “the pipeline of investment opportunities is stronger than last year”. Hogg added that the fund “is optimally positioned to capitalise on improved market conditions”.

One new investment may just be around the corner. A consortium of 3i Infrastructure, Morgan Stanley, and UK-based investment firm Star Capital is said to be the frontrunner in the race to acquire HSBC’s rolling stock business, for which the bank wants £2 billion. A spokeswoman from 3i declined to comment on the deal.

But other new deals might come from India, through the $1.2 billion 3i India Infrastructure Fund, and North America. The Indian fund is currently 42 percent-invested with three deals completed worth a combined $506 million.

Last week, Mark Murtagh, the former head of 3i Infrastructure’s North American team, wrote in a goodbye email that the firm was quitting North America as part of a “broader contraction in its infrastructure business line”. But Hogg subsequently told InfrastructureInvestor.com that 3i continues “to be excited about infrastructure investment opportunities in North America”. In its yearly report, 3i says the North American market has “the potential to become the world’s largest infrastructure market”.

3i Infrastructure invested about £73.4 million last year with £39.1 million used to acquire a near-50 percent stake in a portfolio of several UK-based education and healthcare projects. The remaining £34.3 million was invested across its existing portfolio companies. This “cautious approach to investment during the year” helped increase the net asset value (NAV) of its portfolio from £536.7 million to £648.1 million.

The fund listed on the London Stock Exchange in March 2007, raising £703 million in an initial public offering and further £115 million from a subsequent placing and open offer in July 2008. The firm aims to build a diversified portfolio of infrastructure assets across the globe, with an initial focus on Europe, Asia and North America.