3i Infrastructure (LSE: 3IN) released a first-half trading update today, telling us that “the portfolio overall continues to perform in line with expectations.” Chairman Richard Laing said the board is particularly pleased with the “strong level of income.” He added: “We remain on track to deliver a full year dividend of 7.85p per share.”
The shares opened about a penny higher at 195p, valuing the FTSE 250 firm at just over £2bn and presenting investors with a prospective dividend yield of 4%.
Long-term yield and capital growth
3i said cash inflows for the six months to 30 September totalled £80.6m, compared with £55.7m in the previous six months to 31 March, and £44.7m in the six months to 30 September 2016.
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The company’s cash flows and record of steadily increasing dividends reflect its strategy of investing in operating businesses and projects that generate long-term yield and capital growth. The focus is on economic infrastructure and greenfield projects in developed economies, principally in Europe.
Looking ahead, management said today: “We are reviewing several opportunities to deploy follow-on capital in existing portfolio companies as well as potential new investments in the company’s target markets.” With a cash balance of £40m and undrawn borrowing facilities of £349m out of £500m available, 3i has more than adequate liquidity to further its investments.
This bodes well for a continuation of a rewarding history for shareholders from a company that sports an annualised total return of 11.7% over the last 10 years and an annualised net asset value return of 10.5% over the same period. It’s a stock I’d happily buy for the long term.
Neat low-risk business model
Also falling into this category is speciality pharmaceuticals firm Alliance Pharma (LSE: APH). The company is run by industry veterans and has a neat low-risk business model. Its expertise lies in the acquisition and licensing of pharmaceutical and healthcare products carefully selected for a blend of underlying sales stability and growth potential. Capital-intensive activities, such as manufacturing, warehousing and logistics are outsourced.
Founded in 1996 and floated in 2003, Alliance’s revenue is set to break through £100m this year. At a share price of 55p, this AIM-listed company is valued at £261m. It trades on 13.8 times current-year forecast earnings per share (EPS) of 4p, with a well-covered forecast dividend of 1.28p giving a yield of 2.3%. For next year, the earnings multiple falls to 12.2 on forecast EPS of 4.5p and the dividend yield rises to 2.6% on a forecasted payout of 1.45p.
The valuation looks highly attractive to me and I wouldn’t be surprised if the company beats expectations. Looking ahead, it said in its half-year results earlier this month: “With the integration of the Sinclair Pharma products now complete we are strategically positioned for growth and, with leverage levels reducing, we are now able to pursue bolt-on acquisitions.”
Alliance boasts an annualised total return of 21.7% over the last 10 years and I fully expect this well-managed business to go on delivering excellent value for its shareholders. As such, this is another stock I’d be happy to buy today for the long term.
