MIDAS SHARE TIPS UPDATE: Don’t just hate traffic lights – invest in 3i Infrastructure and they’ll earn you cash
Driven to distraction: Temporary traffic lights are a curse for any driver
Temporary traffic lights are a curse for any driver. They take forever, slow you down and, these days, there appear to be more of them than ever.
SRL is the UK’s biggest supplier of ‘traffic management equipment’, with almost 13,000 pieces of kit from lights to barriers to CCTV.
The bane of drivers’ lives they may be but the business is highly profitable and growing steadily, with customers including local authorities, water firms and contractors.
Late last year, SRL was snapped up by 3i Infrastructure (3iN), which specialises in buying companies that own physical products and perform an essential service.
Many infrastructure firms focus on acquisitions such as roads, prisons and hospitals – so-called private public partnership assets – leased to the Government over a number of years.
3iN is different, seeking out private sector commercial companies, which may be slightly higher risk but tend to deliver better returns. The approach has served 3iN and its shareholders well.
Midas recommended 3iN in 2011, when the shares were £1.15. They had risen to £2.90 by 2019. Today, they are £3.41, with investors receiving more than 28p in dividends over the past three years alone.
3iN aims to deliver total annual returns of 8 to 10 per cent, with around 3 per cent coming from the dividend yield and the rest from an increase in the value of its assets. Under boss Phil White, the group has consistently outperformed that target and looks set to continue doing so.
In the six months to September, returns topped 10 per cent and should comfortably exceed that figure by the March year-end.
The infrastructure market has become fiercely competitive, with lots of big companies and international investors vying to purchase solid, reliable assets, whose income is often linked to inflation.
3iN refuses to become embroiled in expensive bidding wars but has still managed to create an attractive portfolio of businesses, from a fibre-optic cable firm in Germany to an energy-from-waste specialist in the Netherlands to a Danish company that provides emergency services for offshore wind farms in and around the North Sea.
Originally part of 3i, the quoted private equity group, 3iN floated on the stock exchange as an independent entity in 2007 but 3i still owns about 30 per cent of the firm and there are close links between the two.
That connection and 3iN’s own expertise have helped the group to develop relationships across Europe and deals are often secured before they come to market.
White has been particularly busy this year, spending over £1billion on new investments, including Chester-based SRL and GCX, which owns subsea cables stretching all around the world and is used by customers from Netflix to Vodafone to Facebook.
Last week, the group confirmed that its businesses were performing well, and a 10.45p dividend is scheduled for the year to March, up 6.6 per cent from last year. Looking ahead, further inflation-busting increases are likely.
Midas verdict: Infrastructure companies are generally viewed as reliable but a teensy bit dull. 3iN aims to offer the reliability of its peers plus a little extra. Loyal shareholders have been well rewarded and should stick with the business. New investors – especially long-term income-seekers – could also find value in the stock, at £3.41.
Traded on: Main market Ticker: 3IN Contact: 3i-infrastructure.com or 020 7975 3469