Compared to some of the bigger names traded on the ASX, Infratil Ltd (ASX: IFT) shares have gone relatively under the radar for many investors this year.
Here’s a bit of analysis on Infratil and why I think it’s one ASX share to keep your eyes on.
IFT share price chart
What does Infratil do?
Infratil is a New Zealand-based infrastructure investment company. It primarily invests in renewable energy, airports, data & connectivity and social infrastructure businesses in growth areas.
While infrastructure isn’t always the most-loved industry in investors’ eyes, the Infratil business is immediately interesting to me.
Every segment Infratil operates in is hugely important and is being driven by fundamental trends such as energy decarbonisation, the transportation and storage of data, an ageing population and an expanding middle class.
Past developments
Infratil has a history of buying discounted assets and heavily investing in them to sell at much more attractive prices.
In 2010, Infratil and New Zealand Superannuation Fund (NZSF) both paid NZ$210 million each to acquire the retail and distribution assets of what was Shell New Zealand, which was later rebranded to Z Energy. An additional NZ$430 million of debt funding was then used to upgrade the existing infrastructure and win new customers.
Infratil and NZSF eventually floated Z Energy on the NZX in mid-2013. All up after dividends and net proceeds of share sales, the two companies pulled in a whopping NZ$2 billion in proceeds with an initial investment of NZ$420 million.
Can Infratil repeat history?
In 2019, Infratil teamed up with Brookfield Asset Management to buy a 49.9% stake each in Vodafone New Zealand for a total amount of $3.4 billion.
Right now, the focus is on improving the reputation of the company and decreasing customer churn rates rather than chasing new customers. It also believes that by sharing infrastructure assets with other mobile companies, this will result in significant profit margin increases on an industry-wide level.
Infratil has stated that it plans on being a long-term holder of Vodafone, although it supposedly said the same thing about Z Energy, which was floated just 3 years after the acquisition.
Infratil’s data centre play
In 2016, Infratil paid $398 million in equity for a 48% stake in Canberra Data Centres (CDC). CDC provides outsourced data centre services to government and commercial entities through six data centres across Canberra.
Its operations are similar to that of NextDC Ltd (ASX: NXT), although I have observed some differences that I think offer CDC some form of competitive advantage.
CDC has indicated that it’s well-positioned to take advantage of increased spending in data centre services from the Australian federal government in the coming years. Government agencies have additional security requirements that its competitors might not be able to meet, but CDC offers the exact features that are required to meet these standards and is the only provider of significant scale in Canberra and Sydney that is built and accredited for “Top Secret”.
Infratil’s other investments
Infratil has a 51% stake in Tilt Renewables Ltd (ASX: TLT), which has 322 operating turbines across eight wind farms in Australia and New Zealand, with a total installed capacity of 636MW and an additional 336MW under construction.
The Dundonnel wind farm alone will produce enough clean energy each year to power about 245,000 homes. The project will save the emission of roughly 1.3 million tonnes of carbon, which is the equivalent of removing about 440,000 cars from roads.
More recently in October this year, Infratil announced it would acquire up to 60% of Qscan Group, a comprehensive diagnostic imaging practice, from Quadrant Private Equity for a total cash equity consideration of up to $330 million.
This acquisition plans to capitalise on a growing social need driven by an ageing population with an increasing prevalence of chronic disease. Qscan owns over 300 machines that provide diagnostic imaging services predominately across the eastern seaboard of Australia. Over 85% of this industry’s revenue is funded by Medicare, so it appears to be a very reliable and defensive play.
Infratil also has a stake in hydropower stations, solar infrastructure, Wellington Airport and a portfolio of commercial real estate.
Valuing Infratil shares
Based on FY20 earnings, Infratil currently trades on a price-earnings ratio of around 13. Although this does seem cheap, I think that it’s hard to compare Infratil to other companies due to it having a diverse range of operations across multiple industries.
I’d be happy to look past the valuation at this stage because I like the underlying fundamentals that the business operates on.
Summary
If we’ve learnt anything from Xero Limited (ASX: XRO), we should take note of any disruptive companies coming out of New Zealand!
In all seriousness, I think Infratil is one to look out for over the coming years. It seems to have businesses in a lot of exciting industries that will be extremely important in years to come.
