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

Infrastructure Insights Video

Valuation of Infrastructure Assets Q4 2020

Listen to Portfolio Manager Charles Hamieh discuss the valuations from Q4 2020 within the infrastructure asset class and why valuations remain attractive on a medium, to long-term excess return basis.

 

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 a second wave of infections 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:

  • With the rebound behind us, we are seeing divergences based on fundamentals.
  • 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 – recent mobility restrictions (especially in Europe)  have impacted the visibility of cashflows for road and rail stocks, in particular the outlook for airport traffic remain opaque.  
    • Utilities – have minimal impact from the pandemic due to their essential service nature, accommodative regulators, importance in leading the decarbonisation of economies and their social importance as major employers.
    • Dividends – transparency of dividends remains high.
    • Regional divergences are starting to appear based on COVID status. Business conditions in Asia continue to improve while Europe declines and the US flatlines.

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

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