The missing middle: Solving Africa's infrastructure financing gap
Muyiwa Oni
#themes: Credit to Infrastructure, West African expansion, Infrastructure Gap
Event: We initiate coverage on Infrastructure Credit Guarantee Company (InfraCredit) a credit guarantee company with a valuation range of N3.4 to N4.0. We forecast EPS growth of 20.8% and 7.1% in FY26e and FY27e respectively. Our constructive outlook is driven by the improving macro as declining inflation and interest rates reduce asset quality risk and improved outlook for credit growth.
InfraCredit is a public limited liability company established by the Nigerian Sovereign Investment Authority in collaboration with GuarantCo. It is currently listed and trades on the NASD, an over-the-counter securities exchange for unlisted public companies in Nigeria. InfraCredit provides local currency guarantees to enhance the credit quality of debt instruments issued to finance creditworthy infrastructure assets in Nigeria that conform with its eligibility criteria. InfraCredit is a specialised AAA-rated credit guarantee institution in Nigeria. By providing guarantees, InfraCredit helps to attract long-term domestic institutional investments into critical infrastructure sectors such as energy, transportation, agriculture, waste management, ICT and social infrastructure. These guarantees act as a catalyst to attract investment interest from institutional investors such as pension fund administrators, insurance companies/firms and other long-term investors. We are positive about the outlook for InfraCredit for the following reasons 1) good credit rating AAA, reflects the solid asset quality of the guarantee portfolio; 2) increasing appetite for alternative and infrastructure assets by pension fund managers should improve the outlook for the credit guarantee company; and 3) improving macroeconomic outlook as credit appetite increases should drive guarantee portfolio growth over the near to medium term.
We are constructive about Nigeria’s economic outlook over the medium term. We expect GDP growth of 4% and 3.7% y/y for 2025 and 2026, an improvement from 3.4% y/y in 2024. We expect the manufacturing sector to contribute more to medium-term economic growth amid structural reforms and higher crude oil production. We also expect improvements in the regulatory environment in the oil and gas sector to support the recovery in growth.
Key risks: InfraCredit may be required to step in and pay the bondholders or lenders in the case of default because of project delays and overruns. Infrastructure projects in Nigeria are often denominated in foreign currencies, such as the US dollar or euro, but are funded primarily in naira which introduces currency mismatch risk—if the naira depreciates.
Valuation: To arrive at our valuation range, we apply the valuations for both the dividend discount multiple (N3.4) at the lower end and the price to book valuation model (N4.0) at the top end. In deriving a 12-month forward FVVR, we roll forward rate (cost of equity) of 22%.
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