Growing capacity to invest, cheaper valuations than equities and low interest rates were all cited as tail winds for listed infrastructure at an IMCA lunchtime seminar in Sydney on Friday.
The key challenge to this rosy picture for the asset class at the seminar was a difference of opinion on how far interest rates would normalise.
Andrew Maple-Brown, head of global listed infrastructure at Maple-Brown Abbott, said that while his valuation of the asset class factored in rises to interest rates, these rises would be lower than historical averages.
This forecast is based on lower potential global growth.
“If interest rates settle at a lower than historical levels, we think listed infrastructure is fairly valued,” he said. “Infrastructure should re-rate upwards as a long-term asset and making it more attractive than global equities.”
Maple-Brown’s portfolio is weighted towards US utilities and his assumptions are largely based on US interest rates, but a different projection of normalised interest rates was made at the seminar by Stuart Bright, partner, transaction advisory services leader of valuations and business modelling at EY.
He said those who were valuing Australian infrastructure assets were factoring in a reversion to historical averages of between 4-5 per cent.
Maple-Brown added he thought price to multiples of earnings was not the best way of valuing infrastructure. His firm values assets on a multiple of EBITDA to enterprise value.
The growing capacity of the asset class was the focus of the presentation given by Peter Meany, head of global listed infrastructure at CFSGAM.
He pointed towards the recent listing of ENAIRE, the largest operators of airports in the world, as evidence of this, but also saw the annual growth in listed infrastructure universe at between 10-20 per cent per annum (from performance and new issuance) as increasing diversity in the asset class too.
He added that companies in the new FTSE infrastructure index were also achieving re-ratings after improving their governance and business models that gave the asset class the chance to improve in quality too.
Meany forecast returns of 8-10 per cent a year in listed infrastructure and highlighted that while unlisted infrastructure could achieve higher returns, there was less volatility of return in the listed space. He highlighted figures that showed unlisted infrastructure assets had achieved returns of between 20 per cent and -7.3 per cent since 2008, but that unlisted infrastructure returns were steady between 7-9 per cent.
