Infrastructure Insights
Video
Valuation of Infrastructure Assets Q1 2020
The recent fall in the stock market is providing one of the best opportunities to invest in global listed infrastructure. Listen to RARE’s Co-Founder and Senior Portfolio Manager Richard Elmslie, who has over thirty years experience valuing infrastructure assets, discuss why current valuations can provide such tremendous value for investors.
Key takeaways at a universe level include:
- Valuations in general are cheap. EV/EBITDA multiples are misleading for infrastructure stocks due to the significant but short-term 2020 reduction in earnings, which make stocks appear expensive.
- Listed infrastructure is cheaper than unlisted infrastructure. This downturn has seen some unlisted assets being revalued down much faster than in 2008/9.
- The swiftness of this pandemic has created unprecedented reduction in utilisation of infrastructure
- The magnitude of the downturn as well as the potential for a second wave of infections and prolonged lockdowns makes predicting 2020 infrastructure earnings extremely difficult. Utility earnings are underpinned by regulation and remain relatively predictable
- Nevertheless, these are long duration assets so short-term uncertainty has little effect on valuations
Key takeaways at a portfolio level include:
- The correction in the market has resulted in valuations being cheap
- For portfolio stocks, excess return over cost of capital (over 5 years) points to both Infrastructure and Utilities being cheap
- Comments by management of portfolio stocks indicate -
- for infrastructure stocks, very little visibility on volume destruction and revenues in 2020
- for utilities, in general, much better visibility on short and long-term revenues and cashflow
- in general, dividends are secure, although some companies (mainly infrastructure) have suspended dividends until there is greater clarity on restart dates and the level of economic activity. These dividends may be made up later in the year
For the complete Valuation Presentation Pack, please contact our Distribution Team.
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