Infrastructure Insights Video

Valuation of Infrastructure Assets Q2 2024

Portfolio Manager, Daniel Chu, discusses trends affecting infrastructure sector performance and reviews current valuations.

 

Key Takeaways at a Universe Level Include:

  •   Valuations remain attractive on a medium to long-term excess return basis.
  •   Forward looking EV/EBITDA multiples and dividend yields have normalised for infrastructure stocks (especially airports and passenger rail) as the traffic and earnings recovery matures.
  •   Listed infrastructure continues to provide attractive valuations when compared to unlisted infrastructure (although some unlisted transaction multiples have moderated recently), but with added liquidity and a greater opportunity set.
  •   The essential nature of utility cashflows allow for far more predictability in outcomes especially in times of significant economic slowdown.

Key Takeaways at a Portfolio Level Include:

  • 5 year Equity IRRs continue to be at attractive levels relative to history.
  • Comments by management of portfolio stocks indicate:
    • Infrastructure Traffic on developed toll roads, commuter rail and airports have generally fully recovered from the pandemic, and in some cases exceed pre-pandemic levels, such as leisure-based airports and select U.S. and EU toll roads. We have seen some evidence of moderating consumer demand for air travel, as airlines discount tickets to retain passenger volume. U.S. freight rail companies have seen moderate volume growth, although excess transportation capacity is keeping the pricing environment subdued.
    • Utilities We saw slightly more evidence of a potential slowdown in GDP, which saw some improvement in performance from utilities. Utilities especially in the U.S. managed to outperform, as investors recognised the additional need for electricity to power the Al driven data centre growth. Adding on the growth prospects due to policy in favour of the energy transition keeps us constructive on the sector long term.
    • Renewables – Valuations in renewables remain compelling, although longer duration assets (and cash flows) remain sensitive to rising yields. Issues with certain segments of the renewable space have been challenging (for example offshore wind), although we are starting to see fundamentals improve.
    • Energy Infrastructure Cashflow generation from pipelines remains robust due to the highly contracted nature of revenue, despite softness in commodity prices. Additional gas demand needs are also starting to be recognised as part of the Al driven data centre growth theme.
    • Dividends Transparency of dividends remain high in utilities and are improving in transport infrastructure.

For the complete Valuation Presentation Pack, please contact our Distribution Team.

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