Toll roads are one of the first things British motorists encounter when they cross the channel.
But where does the money go?
If you drive from Bordeaux to Spain, there is every chance some of that cash will head towards London-listed investment trust HICL Infrastructure PLC (LON:HICL).
HICL owns 21% of the A63 motorway that links south-west France with the Basque country.
Not only does it contain a pioneering electricity-generating road surface, it is one of the larger investments in a portfolio now worth just short of £3bn.
It is also the type of long-term asset that HICL’s investment manager, InfraRed Capital Partners, loves.
At a cost to build of €1.13bn, the A63 came with a 40-year management concession.
As well as tourists, it is a well-used lorry route between France and Northern Spain and generates just the type of predictable cashflows that have made infrastructure vehicles such a huge draw to investors looking for income.
Harry Seekings, Co-Head of Infrastructure at InfraRed Capital, says giving ordinary investors access to projects such as motorways is the idea behind HICL.
“The premise is to build a well-diversified portfolio of assets that investors are unable to access by themselves.”
That was the policy when the company floated in 2006 and bar the fact it is now an awful lot larger that remains the strategy.
At the time of its IPO, the portfolio was worth around £250mln spread across fifteen holdings.
That has now grown to £2.9bn with 118 investments in the UK, Europe and North America.
Public/private partnerships (PPPS) such as hospitals or schools account for 71% of the portfolio.
A further 21% is invested in demand-based assets including toll roads (such as the A63) and the HS1 rail link between London and the Channel Tunnel.
The remainder is in regulated assets such as energy transmission lines or water utilities.
What they have in common, says Seekings, is that they are delivering essential infrastructure.
“And it is the essentiality of the infrastructure that makes it attractive and provides the foundations for delivering stable income.”
HICL takes an active part in the assets in the portfolio be that at the construction stage or later during the operational phase.
HS1 was built by the UK government but HICL (21.8%) is part of a consortium that bought a concession to manage the line, engineering and stations until 2040.
“It’s important to understand the construction phase is just one part of the asset life,“ he says.
“A PPP project might have a four-year construction period but 25 years of operations and to manage an asset successfully to generate long-term income you have to be proactive.”
A recent investment in the Netherlands, for example, saw HICL take a 20% stake in the construction of the country’s longest-ever road tunnel.
As well as building, the consortium also has a twenty-year management concession.
"There are a lot of stakeholders in infrastructure and a lot of people using the assets," says Seekings.
“Unless you listen and understand their interests, you can’t build and maintain the right sort of infrastructure or deliver a long-term income stream.”An inflation assumption is also part of the cashflow projections for the portfolio.
In the UK currently that assumption is for the Retail Price Index or RPI to rise by 2.75% a year.
Currently, though, inflation is running higher than that, which will modestly boost the value of the portfolio.
Results for the year to 31 March showed a 5% increase in net asset value (NAV) to 157.5p, which was also helped by a write-back of previous provisions for failed contractor Carillion.
At 163p, the shares trade at a 3.5% premium to that NAV while on the last annual dividend of 8.05p the yield is 4.9%.
The company has raised the dividend every year since listed and twelve years of unbroken dividend growth is reason enough why HICL trades at a premium.
Those income credentials were franked further this month when the company reiterated guidance first made in November its for dividend payments over the next two years.
Shareholders are expected to receive an 8.25p payment for the year to March 2020 rising to 8.45p in 2021, which gives prospective yields of 5.1% and 5.2% respectively.
At a time when many businesses are reluctant even to commit to a dividend payment, those targets underline the reliability of its cash flows.
Of course, not everything goes right all the time.
Investee company Affinity Water is having difficulties at present that might lead to a write-down equivalent to between 1.1%-1.4% of NAV.
That is where having a large and well-diversified portfolio is crucial, says Seekings.
“More diversification equals more resilient and robust cash flows and thus more support for shareholders’ long-term income.”