Valuation of Infrastructure Assets Q4 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:

Weaker performance in Q4 2024 due to changes in bond yield and growth expectations. Nonetheless, the fundamentals and outlook for infrastructure remain robust. Q4 2024 performance has resulted in an increase in the 5-yearequity IRRs, making valuations attractive.

Fundamental outlook continues to be constructive:

• Electric Utilities  – AI/data centre growth represents new business for utilities, as increased power consumption necessitates increased grid investments, on top of the growth driven by energy transition and resiliency spending. This is true particularly for North American and European utilities.

• Energy Infrastructure –Growth outlook boosted by AI/data centre demand for natural gas, as well as growth driven by coal-to-gas switching, LNG exports, and near-shoring/manufacturing. Recent election victory for Trump in the U.S. further encourages investments to meet Trump’s energy ambitions.

• UK Water Utilities –Final determination has set a constructive outlook for the next 5 years, enabling well capitalised companies to invest and extract excess returns.

• European Airports –Strong air travel demand in 2024, particularly at tourist destinations, for example, Spain. Slowing down to low-mid single digit traffic growth in 2025 is expected.

• Toll Roads –Still seeing strong traffic and tariff growth in select North American markets, including Toronto, Dallas Fort Worth, Virginia, and North Carolina.

• North American Freight Rails –in ‘bottoming’ phase of freight recession cycle, with early signs of inflection.