Essential Infrastructure - Keeping the lights on

The Enhanced Yield Fund’s recent investment, South Australian Power Networks (SAPN), combines a best-in-class business with stable, defensive cash flow. 

Not only that, the Enhanced Yield Fund bought the bond at an attractive 4.5% yield to the August 2024 maturity and, as an Australian benchmark bond, it is readily tradeable should we ever decide to sell.

Investment overview

SAPN holds a 200-year lease from the South Australian Government to operate the state’s electricity network. This means all the electrical poles and wires running along the streets, and the wires connecting to every house and business in the state, are owned and operated by SAPN. The company is paid to ensure the electricity keeps flowing with as little disruption as possible.

Here’s what we like most about the SAPN investment:

  • Monopoly electricity assets in South Australia; any user of electricity in the state must go through SAPN.
  • Defensive business. People require electricity regardless of economic conditions.
  • Regulated revenue. SAPN’s profit is not affected by electricity demand or price, the company is simply paid to move energy along power lines to home and business. 
  • Revenue adjusted for inflation and the cost of debt, an incredibly valuable feature in the current environment of rapidly rising inflation and debt costs.
  • Consistently the top performing utility in Australia for efficiency and reliability. This is great not just because it makes SAPN a best-in-class business, something we always look for when making an investment, but also because SAPN earns bonus payments from the government each year it outperforms.
  • Conservative balance sheet, one of the strongest in the Australian utility sector.
  • Majority owned by CK Infrastructure, a large and experienced mega-company with a broad portfolio of utilities and funding sources to call on. 

Portfolio of best ideas

The Enhanced Yield Fund targets capital preservation, low volatility and regular income by searching globally for the best businesses in a sector and buying at anomaly prices; companies like this tend to thrive under different market conditions and have the tools available to adapt as needed. SAPN brings a strong mix of asset quality, defensive cash flow, liquidity and yield and is a welcome addition to the Fund. 

 

Power lines fixing

Source: Adobe Stock
 

This insight is issued by PM Capital Limited ABN 69 083 644 731 AFSL 230222 as responsible entity for the PM Capital Enhanced Yield Fund (ARSN 099 581 558, the ‘Fund’). It contains summary information only to provide an insight into how we make our investment decisions. This information does not constitute advice or a recommendation, and is subject to change without notice. It does not take into account the objectives, financial situation or needs of any investor which should be considered before investing. Investors should consider the Target Market Determinations and the current Product Disclosure Statement (which are available from us), and obtain their own financial advice, prior to making an investment. The PDS explains how the Fund’s Net Asset Value is calculated. Past performance is not a reliable guide to future performance and the capital and income of any investment may go down as well as up.