For investors seeking reliable income, global diversification and inflation protection, specialist listed infrastructure portfolios aims to provide all three.

Infrastructure Insights Video

Valuation of Infrastructure Assets Q2 2022

In our latest Valuation update, Portfolio Manager Daniel Chu outlines the main drivers of infrastructure returns in the second quarter of 2022 and weighs in on the factors impacting different infrastructure sectors across the globe. The pack will also highlight how the risk/return attractiveness of listed infrastructure is beginning to tilt toward utilities from more economically sensitive user-pays assets, as recovery on toll roads, commuter rail and airports is impacted by recessionary pressures.

 

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 are beginning to normalise for infrastructure stocks (especially airports and passenger rail) as the traffic and earnings recovery continues
  • Listed infrastructure continues to provide attractive valuations when compared to unlisted infrastructure, but with the added liquidity and a greater opportunity set
  • Challenges are easing with COVID variant strains and vaccine supply improving, but differentiation is still occurring within the infrastructure asset class
  • 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:

  • 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
  • Comments by management of portfolio stocks indicate:
    • Infrastructure –  vfreight rail continues to experience supply chain disruptions, coming from a greater pull forward of product demand, lockdowns (especially in Asia) and labour shortages. 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.
    • Utilities – opposing forces of rising global bond yields and higher energy prices (negative) and the best growth prospects in decades (positive), impacted these essential service assets during the quarter
    • Renewables – vvaluations in renewables remain compelling, although longer duration assets (and cash flows) remain sensitive to rising yields. Positive policy developments building traction.
    • Dividends – transparency of dividends remains high in utilities and improving in transport infrastructure

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

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