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 Q3 2021

Listen to Portfolio Manager Shane Hurst discuss how debate about persistent inflation, high energy prices, supply chain bottlenecks and new variations of COVID saw idiosyncratic drivers such as M&A, asset sales and energy transition concerns drive returns.

 

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 dividends, making 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 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
  • Nevertheless, these are long duration assets so short-term uncertainty has little effect on fundamental valuations.

Key takeaways at a portfolio level include:

  • Debate about persistent inflation, high energy prices, supply chain bottlenecks and new variations of COVID saw idiosyncratic drivers such as M&A, asset sales and energy transition concerns drive returns.
  • For portfolio stocks, excess return over cost of capital (over 5 years) points to both Infrastructure and Utilities being attractive. These attractively priced listed assets continue to draw unlisted capital.

  • Comments by management of portfolio stocks indicate -
    • Infrastructure –  freight rail encountered supply chain disruptions, coming from a greater pull forward of product demand, lockdowns (especially in Asia) and labour shortages. Traffic on toll roads, commuter rail and airports continue to recover, as vaccine penetration improved around the world and travel increased. 
    • Utilities – opposing forces of rising global bond yields and higher energy prices (negative) and utilities having some of the best growth prospects in decades (positive), impacted these essential service assets during the quarter.
    • Renewables – valuations in renewables remain compelling, moving into policy catalysts in the US (stimulus plan) and globally (COP 26).
    • Dividends – transparency of dividends remains high in utilities and improving in transport infrastructure.
    • While regional divergences have been significant, most economies are now coming out of lockdowns and emerging economies are beginning to lift vaccination rates.

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

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