COVID-19 and a further cut to power price assumptions saw NAV per share fall to 309p in H120 (FY19: 337p). However, PPP performed well, bidding momentum has picked up recently and John Laing Group (JLG) expects ‘modest’ NAV growth in H2. New CEO Ben Loomes highlighted digital connectivity and energy transitions as potential future investment themes, and will set out further details in November. We cut our FY20 NAV per share forecast by 14% to 308p. The share price stands at an 8% discount to FY20e NAV per share.
The 8% fall in NAV in H1 to 309p was 6% pre-dividend and would have been 10% without an FX tailwind. PPP (74% of total PV) made a 3% positive contribution to NAV, but renewables (26%) was affected by a further cut to long-term power price assumptions and transmission issues in Australia (-16p). COVID-19 had a relatively modest direct impact (-4p) but prompted a reduction to short-term macro assumptions (-8p) and reduced value enhancements (just +3p vs +16p in H119).
Operational performance during the period was robust without any continuity issues and short delays to only two construction projects. Understandably, procurement processes were affected by COVID-19, reducing JLG’s investment activity to just £2m. However, the pipeline remains intact. The company has seen no project cancellations and bidding activity has picked up since June. Disposal activity held up better (£88m vs £137m in H119), with the company selling five assets (four in renewables) and proceeds in line with book value.
JLG guides to a modest rise in underlying NAV/share in H2 vs H1. We model a 9p increase, but assume it will be offset by FX (-8p) and reduced a further 2p by the interim dividend. Our FY20 NAV/share is 308p (-14% vs March estimate). Forecasting FY21 is tougher in the current macro climate, but management believes valuations are now conservative, and the yield on secondary PPP should prove resilient in a downturn and attractive to potential buyers. We estimate an NAV/share of 315p (a 20% cut) based on a 17p a lift in asset value and a 9.8p dividend.
At 284p, JLG trades at an 8% discount to FY20e NAV/share and close to the bottom of its historical range. Yet its core PPP portfolio continues to generate value and, with renewable valuations reset and exposure falling, the worst could be behind it. We expect CEO Ben Loomes to set out the details of a new strategy addressing both digital connectivity and energy transition themes in November. Both areas look set to benefit from a substantial boost in infrastructure spending.