Infrastructure valuations should have greater focus than just multiples of earnings to price, a panel agreed at the Fiducary Investors’ Symposium.

Headlines focus on multiples, based largely on the Capital Asset Pricing Model (CAPM), but this can be misleading and a greater focus should be put on cash flow and management, agreed Colin Atkin, executive director of portfolio manager for UTA at Hastings Fund Management, and Andrew Killesteyn, consultant at JANA.

“One of our funds acquired Port of Newcastle and the headline was 27 times multiple. People said too much was paid, but now it is under 20 times because the business plan executed after acquiring the asset brought it down very quickly,” Atkin said.

CAPM is currently the best tool for communicating to investors about the asset but, Atkin added, the apparent robustness of CAPM was not enough as six of the factors were all completely subjective – a key issue around failure in investments at the moment.

Atkin told how asset owners can own 20 to 100 per cent of an infrastructure company meaning heavy involvement in its governance. The acquisition process can be very intense, and bidding can drive up the multiples, but valuation should be about the cash flow of the underlying core assets in multiple economic cycles and conditions.

“We are thinking what we can do to leverage, what we can do to cash flows, but more important than any of that is what can be done with management. Of our horror stories (in infrastructure assets) it’s mostly around management,” Atkin said.

Killesteyn said that discounted cash flow methodology is the best way of valuing an asset as it was important that cash flows were predictable.


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