Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Delft Partners CEO and portfolio manager Robert Swift.


What’s hot right now?

Swift says Delft Partners and its Hong Kong based joint venture partner, AOP Capital, have been watching and investing in global listed infrastructure for a few years.

“We think this is clearly an area which is going to attract more attention, investment capital, and a reduction in the required risk premiums – this means the stocks in this sector will enjoy a re-rating and outperform,” he said.

“Our central thesis behind listed infrastructure is that there is a clear need for growth of and an improvement in the capital stock of many countries.

“This need will ultimately produce the required incentives of public and/or private sector spending and will create both positive news flow as well as a more stable fundamental backdrop for this sector, since higher capital expenditures will translate into revenues.”

Investors should therefore tolerate a systematic reduction in the risk premium (increase in P/E) of companies operating, designing, and building, or repairing this capital stock, he said.

“Countries like the USA and much of Europe need to repair what is very outdated infrastructure,” he said.

“The 2021 American Society of Civil Engineers report classed American Infrastructure as being C- grade and much of the subcategories such as dams, transmission lines and transit are a failing grade.”


High investment needed to keep pace with urbanisation

On the other hand, Swift said Asian countries spend more as a % of GDP on capital stock but are both looking to privatise the operators of this stock on their stock markets and will need to maintain high investment spend to keep pace with urbanisation and the growth of the middle class.

“Our specific sub sector exposures would be oil and gas pipelines, and LNG ‘trains’,” he said.

“More generally in power transmission the increasing use of renewables and carbon-based sources requires a greater flexibility and technology in grid management than is generally appreciated.

“Oil and gas in the USA is somewhat controversial with some states such as Michigan looking to prevent new pipelines crossing wilderness or national parks, and other States quite happy to receive the investment.

“Generally we can divide the North and South as being against and for more pipeline spending,” he said.

The USA is just about becoming an exporter of LNG, Swift added, and given the likely postponement or cancellation of Nordstream 2, as well as dramatic energy price increases in Europe as a consequence, there is likely to be buoyant demand for LNG globally.

“QATAR cannot make up the shortfall from Nordstream 2 as they have recently declared,” he said.

“Additionally, as it gets harder to build new pipelines due to the “Green Lobby”, the value of the existing pipeline network should increase.

“Consequently, the valuation and earnings outlooks for these companies is sound.”


Top picks

Swift’s three top picks are all listed in North America.

Cheniere Energy (LNG US)

Market cap: $32.6bn

FWD P/E: 13.38

Cheniere Energy operates LNG Terminals and LNG Pipelines in Louisiana and Texas and is now the largest producer of LNG in the US.

The company has grown rapidly since 2016 growing revenues 11x and is now entering a phase of strong cashflows and sustainable grown.

“Strong LNG and natural gas prices driven by demand in Europe and Asia, which will remain strong through geological uncertainty are pushing increases in EBITDA guidance,” Swift said.

“Strong free cash flows are allowing for increased debt repayments that will strengthen fundamentals allowing for an investment grade rating on remaining debt reducing overall interest expenses and recently signed long-term contracts allow for further expansion of Corpus Christi Liquefaction facility.”


Oneok (OKE US)

Market cap: $27.4bn

FWD P/E: 18.04

ONEOK is an Oklahoma-based midstream gas provider focusing on NGL processing and pipelines.

“The company has a footprint of more than 60,000km of pipelines transporting natural gas and natural gas liquids and is a significant supplier of NGLs to the petrochemical industry in middle America,” Swift said.

“Oneok focuses on the natural gas segment with favourable contract structures that focus on volume shipped and are not subject to commodity price risk, plus it has a history of strong dividend payments and is currently yielding 6.1%.”


Enbridge (ENB CN)

Market cap: $107bn

FWD P/E: 17.56

Enbridge is a Canadian based hydrocarbon storage and pipeline operator.

It currently moves about 25% of crude oil produced in North America and almost 20% of natural gas consumed in the US.

“The company has a significant amount of debt much of which is extremely long duration making it well placed with inflation rising,” he said.

“Enbridge currently yields 6.5% and has a long history of dividend growth with 27 years of dividend increases.

“Much of the company’s investment programme may be subject to capricious ‘Green” rulings but this risk appears discounted in the price, and likely mitigated through diplomatic channels.”