BBGI Global Infrastructure SA (LSE:BBGI, Financial) is a Luxembourg-based investment company listed on the London Stock Exchange. It specializes in investing in revenue-generating infrastructure projects across various sectors, including education, health care, emergency services, affordable housing, correctional facilities, clean energy and transportation. The company aims to provide globally diversified infrastructure investments that not only generate long-term and sustainable returns, but also serve important social purposes in local communities.
The company's business model is built on four strategic pillars, including a focus on low-risk investments in highly rated countries, operating in stable environments, maintaining a globally diversified portfolio and prioritizing strong environmental, social and governance practices. BBGI is internally managed, with an in-house team dedicated to delivering value to shareholders while maintaining portfolio growth. The company emphasizes strong pricing discipline and effective portfolio management, ensuring competitive ongoing charges for investors.
Growth and investment strategy
At the time of its initial public offering in 2011, BBGI Global acquired a seed portfolio consisting of 19 availability-style assets. Over time, the company has adhered to strict risk-return criteria and now boasts a portfolio of 56 high-quality projects. Since its IPO, it has achieved an annualized total net asset value return per share of 9.1% (as of June 30, 2022: 8.8%), following an accretive and disciplined acquisition strategy focused on sustainable growth.
The company operates based on three core principles: value-driven active asset management, prudent financial management and a selective acquisition strategy. These pillars are integral to its success. BBGI actively manages its assets to preserve and enhance their value throughout their lifespan, aiming to reduce costs, improve operational efficiency and ensure a high level of asset availability, aligning with its social purpose.
Prudent financial management includes efficient cash and corporate cost management, as well as the implementation of a foreign exchange hedging strategy to mitigate currency risks resulting from its geographically diverse portfolio. BBGI pursues a selective acquisition strategy that aligns with its expertise and investment proposition, focusing on acquiring assets with long-term, predictable, inflation-protected characteristics that support the portfolio's contracted, high-quality and 0.5% inflation-linked investments.
The majority of its investments are located in the U.K. and North America.
Revenue model
BBGI operates an availability-style revenue model, with 99.5% of revenue derived from operations and 0.5% from construction. An availability-style revenue stream refers to a type of contractual arrangement in which the revenue generated is based on the availability or utilization of a particular asset or infrastructure. In this model, the revenue is often derived from payments made by a public authority or government entity, which enters into a long-term agreement with an infrastructure investor or operator.
Under an availability-style revenue stream, the investor or operator is responsible for the construction, operation and maintenance of the infrastructure asset. In return, they receive regular payments from the public authority based on the availability or performance of the asset. The payments are typically fixed and contractually agreed upon, providing predictable and stable income for the investor.
This revenue model is commonly used in sectors such as transportation (toll roads, bridges), utilities (water treatment plants, power plants), social infrastructure (schools, hospitals) and other public-private partnership projects. The availability-style revenue stream provides financial incentives for the investor to ensure that the asset is well-maintained and accessible to the public, as revenue is directly tied to the asset's availability and usage.
Dividend and book value growth
BBGI has a strong record of paying dividends, which have been growing. The company currently yields 5.75% with a dividend payout ratio of 44%.
The company's tangible book value has grown in line with the dividends and is currently £ 1.50 and exceeds the stock price. Tangible book value per share shows the value of a company's net assets minus its intangible assets divided by shares outstanding. Intangible assets while important, but they're not physical assets that can be readily sold if the company gets into trouble.
Valuation
I used the GuruFocus discounted cash flow calculator to estimate the intrinsic value of BBGI shares. Please note that instead of earnings per share in the starting point, I used dividends paid. I think this is more appropriate as earnings are variable, but the dividend is more predictable. I also added the tangible book value to derived fair value as the assets are long-lived and can be monetized. The derived value indicates a margin of safety of over 42%.
The GuruFocus Valuation panel also points to solid value.
Conclusion
BBGI looks to be a lower-risk investment that pays a good dividend and is undervalued, selling below tangible book value. It has a good balance sheet with only 5% debt-to-equity. Thus, I feel the company is a good diversifier in a portfolio for steady income.
It may also be a takeover candidate for pension plans or private equity looking for these kinds of steady investments.
