Valuation of Infrastructure Assets Q2 2020

Listen to Senior Portfolio Manager Shane Hurst discuss the valuations from Q2 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:

  • Strong performance during the quarter, as markets recovered from oversold levels. 
  • 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 mobility has improved the visibility of cashflows for road and rail stocks, while 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 has increased across the portfolio, with increasing global mobility and companies shoring up their liquidity.
    • Opportunities remain in these dislocated markets across all sectors and regions.

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

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