RMII's 1.8% Three-Year Loss: A Closer Look at the Performance and Prospects

Investors in RM Infrastructure Income (LON:RMII) who purchased shares three years ago face a modest 1.8% loss, according to recent data. While this underperformance may seem inconsequential, a deeper analysis reveals a complex interplay of factors shaping the fund’s trajectory. From dividend cuts to portfolio risks, RMII’s journey highlights both challenges and opportunities in the infrastructure debt sector.

The Numbers Behind the Loss

The 1.8% loss stems from the stock’s decline from 74.10p in May 2022 to its May 2025 close of 72.75p. While this represents a slight dip, the fund’s broader metrics tell a more nuanced story. Over the past three years, RMII’s NAV (Net Asset Value) has dropped from 88.88p in December 2023 to 84.73p in December 2024, a 4.69p decline. The share price, however, has consistently traded at a 13–14% discount to NAV, suggesting investors are penalizing the fund for liquidity risks and an uncertain outlook.

Key Drivers of Underperformance

1. Dividend Reductions:
   RMII slashed its annual dividend from 6.50p in 2022 to 5.50p in 2024, with further cuts expected in 2025. This reflects a strategic pivot toward capital preservation during its managed wind-down process, which aims to liquidate assets by 2027. While the September 2024 tender offer (returning £17.5m to shareholders at an 88.59p premium) provided a temporary boost, reduced dividends have deterred income-focused investors.

2. Portfolio Concentration and Risks:
   The fund’s remaining loans are increasingly concentrated in high-risk exposures, such as Loan Ref 39 (Beinbauer), a German auto parts firm facing sector-wide headwinds, and Loan Ref 76 (Empowered Brands), a struggling gym franchise requiring managerial intervention. These assets now account for a significant portion of the portfolio, raising concerns about default risks and valuation stability.

3. Discount to NAV Widening:
   Despite a slight narrowing in late 2024, the NAV discount remains stubbornly high at 14.16% (as of May 2025). This discount reflects skepticism around RMII’s ability to realize full value from its assets amid macroeconomic headwinds and geopolitical uncertainties.

The Wind-Down Strategy: Hope or Hurdle?

RMII’s managed wind-down process, approved in 2023, aims to return £29.5m to shareholders in 2025 through targeted repayments and tender offers. The fund has already reduced its loan count from 31 to 17, with cash reserves hitting £20m post-early 2025 repayments. However, this strategy hinges on two critical assumptions:
- Timely Loan Repayments: Key loans, such as Ref 88 (£13m targeting Q2 2025), must be repaid as planned. Delays could exacerbate NAV declines.
- NAV Discount Convergence: For investors to profit, the discount must narrow as assets are liquidated. Current valuations suggest this is far from certain.

Sector Context: Infrastructure Debt in a Volatile Market

The broader infrastructure debt sector faces its own challenges. While AI-driven demand for data centers and renewable energy projects offer growth opportunities, geopolitical fragmentation and rising interest rates have introduced volatility. RMII’s focus on secured loans and long-term contracts provides some insulation, but its small size (market cap: £71m) and reliance on a few large borrowers amplify concentration risk.

What’s Ahead for RMII?

The fund’s 2025 outlook includes:
- A second tender offer, potentially mirroring the 2024 success.
- Repayment of £29.5m from major loans, with the remainder targeted for 2026.
- A final wind-down phase by 2027, focusing on equity stakes in Trianco and Empowered Brands.

However, risks persist. A £571,341 loss in 2024 (offset by capital returns) underscores operational challenges. Meanwhile, PIK interest write-downs and fixed costs during the wind-down may further pressure distributable income.

Conclusion: A Mixed Bag with Hidden Upside

While RMII’s 1.8% three-year loss is disappointing, the fund remains undervalued at a 14% discount to its NAV of 84.75p. For investors willing to ride out the wind-down process, the 7.69% dividend yield and potential NAV convergence could justify a long-term holding.

Yet, caution is warranted. The portfolio’s reliance on risky loans and the likelihood of further dividend cuts mean this is not a “set-and-forget” investment.

Final Take:
RMII offers a high-risk, high-reward proposition. The discount to NAV and dividend yield provide a margin of safety, but success hinges on executing its wind-down strategy flawlessly. Investors should weigh their appetite for volatility against the potential for capital appreciation if the fund meets its repayment targets. For now, RMII remains a speculative play in a sector where patience—and a tolerance for uncertainty—are critical virtues.