Foresight stays flat despite market volatility

Whether infrastructure is such a solid investment is a point many infrastructure-focused funds have had to wrestle with after the ripple effect from the cancelling of HS2 spread uncertainty across the sector. While Foresight Group’s (FSG) specialisation in renewables infrastructure and forestry insulated it to some extent, the largely static assets-under-management (AUM) of £12.2bn represented a defensive win in a difficult half.

However, with outflows of around £200mn evident in some of its retail investor-focused funds, which accelerated going into the second quarter, the current business environment is clearly difficult.

Around 80 per cent of the group’s AUM is focused on infrastructure, which also contributes roughly 59 per cent of its underlying cash profits. Management noted that the market for institutional fund raising in the sector was largely moribund, though it expects this to pick up in the first half of 2024.

This, combined with higher interest rates, has hit valuations for long duration infrastructure assets. This means that even with Foresight able to deploy £5bn of future funding for renewables projects, the difficulty that listed companies are having in raising money on the markets means the scale of new investment will be far lower than in previous years.

The private equity business, with £1.4bn of AUM, found inflows easier to attract, particularly from retail investors looking for inheritance tax benefits in Foresight’s suite of VCTs.

Analysts at broker Numis forecast EPS of 35.2p for 2024, giving a PE of 11.9. Though only mid-range for asset managers, we see little incentive to continue with our recommendation based on higher interest rates staying for longer and attriting asset valuations. Hold.   

Last IC view: Buy, 430p, 4 Jul 2023