EMEA: Dalmore, Equitix offer large premium for JLIF

16 July 2018 - 12:00 am UTC

Dalmore Capital and Equitix have joined forces to explore a GBP 1.41bn cash offer for John Laing Infrastructure Fund (JLIF), taking advantage of a current undervaluation of PPP companies.

Monday’s (16 July) bid price – at GBP 142.5p per share, a 20.6% premium to JLIF’s closing share price of last Friday – illustrates the high prices investors are willing to pay for UK PPP assets.

The offer, which includes a GBP 3.57p per share dividend to JLIF shareholders, also represents a 16.9% premium to JLIF’s NAV per share of GBP 121.9p as at 31 March.

The announcement comes a few months after Inframation reported that JLIF had hired KPMG to explore possible asset sales amid political and Carillion-related uncertainties.

Robert Murphy, managing director at Edison Group following JLIF, noted that a year ago JLIF traded at a premium to NAV of around 12%. But on Friday, the firm traded at a 4% discount to NAV. 

He linked this to the sell-off in long-term bonds last September, the collapse of Carillion and concerns about the future of PPPs if Labour wins the next election.

JLIF’s shares are down by more than 10% over the past year. According to a recent report by analysts at Canaccord, JLIF had been impacted by GBP 10.9m of provisions regarding Camden Social Housing and the Roseberry Park Hospital.

JLIF has written down its investment in the latter after the project’s SPV went into administration. It acquired Roseberry Park from John Laing Plc in 2012.

Investors take aim at PPPs 
The deal also echoes frothy prices investors are willing to pay for PPPs.

In the wake of the JLIF takeover announcement, shares in rivals HICL Infrastructure, BBGI and 3i Infrastructure rose by 4%, 1.1% and 0.9% respectively.

Murphy, who described the offer price of GBP 142.5p as “quite full”, added: “There are a number of reasons why Dalmore and Equitix would do this deal, such as undervalued assets, an opportunity to build exposure in certain sub-sectors or simply as an additional growth opportunity.”

Last year, Dalmore agreed to buy Balfour Beatty’s 12.5% stake in the M25. The deal netted the seller GBP 53m – GBP 37m more than it expected to achieve – demonstrating a heightened interest in PFI trade assets.

The deal also reflects Dalmore’s plans to broaden beyond the UK.

Dalmore predominantly targets the UK but late last year it closed Dalmore Capital Fund 3, which will be able to invest up to 20% of capital in continental Europe.

A successful acquisition would broaden Dalmore’s and Equitix’s portfolios, giving them some non-UK exposure.

JLIF mostly invests in UK assets, especially when it comes to education, but has a more geographically diversified approach for transport and government buildings.

Barcelona Metro Station comprises 14% of its portfolio, while it also controls a road in Finland and service stations in the US. JLIF has stakes in two hospitals in Canada and two Dutch government buildings.

Dalmore has had a busy recent investment period. In June the manager led a consortium that paid some GBP 1.5bn to acquire energy-from-waste company Cory Riverside.

In May it was part of the consortium that acquired the remaining 25% stake in National Grid Gas Distribution Networks, now known as Cadent Gas Networks, for GBP 1.2bn.

Dalmore and Equitix must either announce a firm intention to make an offer or withdraw from the negotiations by 13 August.