The coronavirus crisis has highlighted infrastructure companies’ ‘social license to operate’1. The global lockdown has reminded us which services are essential for society to function at its most basic level, as we have all retreated into our own homes. Our basic needs come down to having the water running, electricity and gas supplied, and our WIFI working so that we can remain connected to the outside world. Infrastructure companies have a social license to operate – a factor that the Global Listed Infrastructure team integrates into our company analyses.
The way that companies have behaved during COVID-19 gives us further insight to their commitment to all stakeholders, and overall, they have performed well. Looking after all stakeholders is a fundamental part of honouring a social license to operate, so the pandemic should not have changed that.
We know that when companies fail to build their business strategy around all stakeholders, then regulators and politicians get involved. When that happens, the company never wins. We’ve seen time and time again that when companies do not provide adequate levels of service to their customers, or when they do not consider all stakeholders, their remuneration gets cut or future growth is diminished.
A time for collaboration
A notable outcome of the lockdown is the strong collaboration between business and government.
We have seen governments, communities and businesses all working together with the common philosophy that together we are stronger to get through this crisis. If all parties have worked well together this should only strengthen the relationships a company has with its communities and with the government.
We also believe that infrastructure can have a role to play in driving economic growth. Agendas such as the European Green Deal2 is. This program couldcan help in stimulating the economy through investment in renewable generation, electrification of transportation and decarbonisation of heating. This allows companies to accelerate their investment in renewables, which in turn leads to job creation and economic growth.
When it comes to dividend payments there’s no ‘one-size-fits-all’: as long term investors, we look at the sustainability of the cashflows and dividend.
Certainly, we believe companies who have accepted some form of government support should not be paying out dividends. However, none of the companies we invest in have opted for that level of support.
As such, the key deciding factor is the strength of a company’s balance sheet. Those with weak balance sheets and limited liquidity should not increase debt to pay out a dividend, just because they committed to it before the crisis. But we believe companies with strong balance sheets and no liquidity concerns should absolutely pay their dividend. These companies have significant retail investor bases, and many of those people rely on dividends for income.
Looking at how different infrastructure sectors will recover from the crisis, the structural drivers for all sectors should resume over time.
We believe that toll roads will be the first sector to rebound given they are tied to domestic movements. With lockdown restrictions easing, people will likely be allowed to travel within their own countries.
For airports, we anticipate that domestic travel will recover in a similar time frame to toll roads but international travel will take longer absent a vaccine, as countries will be unwilling to open their borders without some safeguards in place.
1 This concept refers to an organisation’s ongoing approval among the local community and other stakeholders to conduct their business.
2 A set of policy initiatives designed to make Europe carbon neutral by 2050
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