BBGI Global Infrastructure (BBGI ) is pinning its hopes on falling UK government bond yields to bring the shares back to par as the income fund’s robust half-year results fail to move the dial.

Duncan Ball said stabilising and falling interest rates should start to make the 6.3% dividend yield with inflation linkage more attractive relative to UK government bonds, or gilts.

The £1bn fund owns toll bridges, roads and facilities at schools, hospitals and prisons in G7 countries on which it earns long-term contractual revenues. 

Over the six months to the end of June, the fund saw its net asset value (NAV) per share soften 0.3% to 147.4p, as the pound strengthened against the Canadian dollar, Australian dollar, euro and Norwegian krone, but depreciated against the US dollar, despite hedges, knocking 0.7% from the NAV.

Including the 4.2p dividend and £1.2m May share buyback, the portfolio delivered a total return of 2.4%. Shareholder returns fell 2.3%, according to Morningstar data.

The board reiterated its full-year dividend target of 8.40p, which it expects to be covered 1.47 times by earnings, as well as a 2% higher payout of 8.57p for 2025.

‘We’re doing everything in our control,’ Ball (pictured below) told Citywire. ‘If the shares were trading at a 25% discount, we would be selling assets and buying back shares. The challenge is at the current 8% discount, if we were to sell an asset, by the time we’d sold it, the shares could be at a premium and we would have lost a revenue-producing asset. We’ve been less quick to do that, but we’re at a narrower discount and wanted to focus on paying down the revolving credit facility.’

Since paying off all short-term debt earlier this year, Ball (who has been sole lead manager since Frank Schramm retired in January) has been sitting on a £20.6m cash pile, but has passed over more than 50 investment opportunities that fell short of the fund’s high hurdle rate, meaning it is now two years since an asset was added to the portfolio.

Ball said there was deal flow in the global infrastructure sector, as evidenced by peer HICL Infrastructure (HICL ) offloading its remaining stake in the US Northwest Parkway toll road to French infrastructure investor Vinci at a 30% premium earlier this year. However, the deal was not indicative of the wider market, he explained, with Vinci comfortable buying at a premium given its plans to build out the last leg of the road.

If an opportunity met all criteria, Ball would be happy to borrow cash again to invest, with £230m available on its revolving credit facility, as well as the dry powder on the balance sheet. He is in no rush, though, with the portfolio’s contractual cashflows in a position to pay a progressive dividend for 15 years.

He struck a bullish tone, with falling interest rates likely to be reflected in the discount rate coming down from the current 7.3% in the near future, boosting NAV, and he reiterated that investors have seen a positive return every year since the launch in 2011 apart from last year.

Ball has significant ‘skin in the game’, with a £2m investment in the trust, while chief financial officer Michael Denny has a £1.2m investment, according to Investec. About 87% of employees at the company own shares, too.

Shares in the trust softened 0.2% to 134.80p on Thursday, putting them on a 9% discount to the June NAV.

Over five years, BBGI has delivered underlying returns of 41%, which is ahead of the FTSE All Share index’s 39%, but the shares trail with a 9% return, Morningstar data shows.

Investec analyst Alan Brierley noted the real yields on the 10-and 20-year index-linked gilts of 0.55% and 1.2% respectively. ‘The portfolio continues to perform well operationally and financially, and the company remains well positioned with a conservative balance sheet,’ Brierley said, maintaining a ‘hold’ recommendation.

Deutsche Numis analyst Andrew Rees noted that BBGI’s 8% share price discount was narrower than the 17%-19% for peers HICL and INPP while the BBGI board was yet to commit to any share buyback measures.

‘We view BBGI as a high-quality business but maintain a preference for the revenue diversification and higher inflation linkage on offer elsewhere in the core infrastructure sub-sector,’ Rees said.