Buy a pound of assets for around 79p, then collect a 9% income while you wait for the gap to close. That, in rough terms, is the case for GCP Infrastructure Investments (LSE:GCP).
The company holds a portfolio worth over £850m, spread across 47 separate investments in UK infrastructure. Its shares change hands at a 21% discount to net asset value, which stands at a little over 100p.
The income has been paid consistently for 15 years.
What the company actually owns
GCP lends to UK infrastructure projects that carry some form of public sector support. Think long-dated, inflation-linked subsidies attached to schools, hospitals, social housing and clean power. It focuses on debt rather than equity, which shapes how investors get repaid.
“We have fully amortising debt that’s underpinned by the cash flows generated by an asset,” says Phil Kent, CEO of Gravis Capital, the FTSE 250 company’s manager.
In plain terms, each loan is repaid over its life from the cash a project throws off. GCP assumes no residual value at the end. A wind farm or a concession hands nothing back once its working life is over.
The portfolio spans three core areas: old PFI contracts, renewable energy and supported social housing. Within renewables, it holds wind, solar, hydro, biomass, geothermal and anaerobic digestion.
That spread softens the risks troubling pure-play green funds, from power price falls to grid curtailment.
A discount built by a buyers’ strike
The 21% discount is the heart of the story and the source of the opportunity. For most of its life, the company traded at a premium of 5% to 15%.
That was the era of near-zero interest rates, when income hunters had to work hard to find yield.
Higher rates changed the maths. A long-dated, fixed-rate income offering looks less tempting against cash, gilts and bonds.
Kent accepts that rate move explains part of the fall. He does not think it explains all of it.
The rest, he argues, is a buyers’ strike. “There’s just been an exodus among wealth and retail investors to alternative income,” he says.
Some peers made it worse with asset write-downs and falling power-price forecasts. Many original buyers were sold the story 10 to 15 years ago. They have moved on, or handed portfolios to heirs who never understood them.
Kent is blunt on one point. He sees no asset-specific problem that would justify a loss of faith in what GCP holds.
Selling assets to make the point
In December 2023, the board set out a capital allocation plan with one aim: shrink the discount through actions it controls.
