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:

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.