On 22 January 2021, RARE Infrastructure Limited changed its name to ClearBridge Investments Limited.

Infrastructure Insights Video

Valuation of Infrastructure Assets Q1 2021

In the latest Valuation of Infrastructure Assets, Portfolio Manager Shane Hurst discusses, among other topics, how the increasing speed of the vaccine rollout (especially in the developed world) led to improved visibility in cash flows from toll roads and freight rail, how the outlook for traffic on commuter rail and airports remains limited but is expected to improve through 2021 and how some renewables valuations became stretched after very strong performance in 2020. 

 

Key takeaways at a universe level include:

  • Valuations remain attractive on a medium to long-term excess return basis.
  • EV/EBITDA multiples and Dividend Yields are misleading for infrastructure stocks due to the significant but short-term reductions in earnings and dividend, which make them appear expensive. 
  • Listed infrastructure continues to provide attractive valuations when compared to unlisted infrastructure, but with the added liquidity and a greater opportunity set.
  • Challenges continue with variant COVID strains and vaccine supply constraints impacting mobility, as differentiation has begun to occur within the infrastructure asset class.
  • The essential nature of utility cashflows however allow for far more predictability in outcomes.
  • Nevertheless, these are long duration assets so short-term uncertainty has little effect on valuations.

Key takeaways at a portfolio level include:

  • Strong global economies and stimulus saw transport and energy infrastructure continue their recovery, while renewables in the US and Europe took a pause.
  • For portfolio stocks, excess return over cost of capital (over 5 years) points to both Infrastructure and Utilities being attractive.
  • Comments by management of portfolio stocks indicate -
    • Infrastructure – increasing speed of the vaccine rollout (especially in the developed world), saw improved visibility in cashflows from toll roads and freight rail. The outlook for traffic on commuter rail and airports remains limited, though is expected to improve as we move through 2021.
    • Utilities – opposing forces of rising global bond yields (negative) and utilities having some of the best growth prospects in decades (positive), impacted these essential service assets during the quarter.
    • Renewables –valuations in some renewables became stretched, after very strong performance in 2020.
    • Dividends – transparency of dividends remains high in utilities and improving in transport infrastructure.
    • Regional divergences are starting to appear based on COVID status.

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

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