Australian Infrastructure Fund

Australian Infrastructure Fund’s interim result reflects Australia’s two-speed economy. Underlying revenue increased 8.1% to $141m, and operating earnings increased 7.0% to $93.4m. Proportionate earnings, which incorporate interest, tax and maintenance capital expenditure costs, increased 17.2% to $47m. That’s equal to earnings per security of 7.6 cents for the half-year. The unfranked interim distribution was kept flat at five cents (ex date already passed), putting the stock on a 4.9% distribution yield.

Perth Airport was the hero, producing a 9.4% increase in operating profit to $103m. Passenger growth also increased 8.7%, as Western Australia continues to lead the resources boom. Passenger growth has been far more muted at Australia’s other major airports, including most in Australian Infrastructure Fund's portfolio. While the strong Aussie dollar is boosting international outbound passenger numbers, growth in domestic passenger numbers in non-resources states is feeble or negative. Tiger Airways’ suspension didn’t help.

The company recently announced the sale of its 35% interest in the Port of Geelong as it focuses on its core Australian airport portfolio. That's a step in the right direction but we're hoping for a bigger step. Credit Suisse and Citi have recently been hired to assess options to bridge the gap between the current market price and reported net asset value (NAV) of $2.92, considering options including further asset sales and the internalisation of management.

If this review results in no changes to the current structure, then Australian Infrastructure Fund securities deserve to continue trading at a large discount to NAV. But the chances of securityholder-friendly changes have improved. We're moving the Take Part Profits price in our recommendation guide from $2.10 to $2.30 in response. And, with the security price up 10% since 30 Aug 11 (Hold – $1.85), we’re sticking with HOLD.