Valuation of Infrastructure Assets Q4 2022
In our latest Valuation update, Portfolio Manager Daniel Chu outlines the main drivers of infrastructure returns in the fourth quarter of 2022 and weighs in on the factors impacting different infrastructure sectors across the globe.
Key Takeaways at a Universe Level Include:
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Valuations remain attractive on a medium to long-term excess return basis
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Forward looking EV/EBITDA multiples and Dividend Yields are beginning to normalise for infrastructure stocks (especially airports and passenger rail) as the traffic and earnings recovery continues
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Listed infrastructure continues to provide attractive valuations when compared to unlisted infrastructure, but with the added liquidity and a greater opportunity set
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The essential nature of utility cashflows, however, allow for far more predictability in outcomes especially in times of significant economic slowdown.
Key Takeaways at a Portfolio Level Include:
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Excess return over cost of capital (over 5 years) points to both Infrastructure and Utilities being attractive. Risk/return beginning to tilt in favour of Utilities over Infrastructure
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Comments by management of portfolio stocks indicate
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Infrastructure – Traffic on developed toll roads, commuter rail and airports continue to recover from the pandemic although recessionary impacts will start to weigh in on traffic
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Utilities – peaking global bond yields and higher energy prices (negative) continues to weigh on utility performance, offsetting the best growth prospects in decades due to policy in favour of the energy transition (positive).
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Renewables – valuations in renewables remain compelling, although longer duration assets (and cash flows) remain sensitive to rising yields. Positive policy developments building traction
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Dividends – transparency of dividends remains high in utilities and improving in transport infrastructure.
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For the complete Valuation Presentation Pack, please contact our Distribution Team.
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