March 2012, this was our recommendation on SKI... "Good blue chip share paying a high dividend... cheap right now... should see 20% growth... add to your portfolio."
Spark Infrastructure (SKI) is an infrastructure fund with an objective to invest in regulated utility infrastructure, both within Australia and overseas.
This includes electricity and gas distribution and transmission, regulated water and sewerage assets.
Spark Infrastructure's current portfolio comprises a 49% interest in three regulated electricity distribution companies, ETSA Utilities, CitiPower and Powercor.
SKI has three stable predictable government regulated revenue streams with pricing typically reset every five years, it recently went through its repricing with a positive result. This business has low debt and a steady cash flow which is why recently we have seen the price of the company move up to its current level of $1.59.
I suspect as interest rate drop investors are look for stable income above the cash rate which is what spark provides.
It is currently paying a 6.2% return which I suspect is attractive for the cash investor. Given the stability of the company’s cash flow its dividend is also very stable and will increase modestly over the coming three years to provide a forecasted dividend of 6.8% in the 2014 financial year at the current price.
Given the stability of the revenue that this company generates it is also much easier to value, we have a fair value of $1.35. The company is currently trading at 15% above its fair value.
Given that our initial buy recommendation on this company as at $1.10 when the yield was above 8% it is time to sell and take profits.
There are plenty of fixed interest investments paying over 7% without the downside risk to move these funds into.
For more information on Spark Infrastructure (SKI) please contact us on 07 4771 4577.