Key Trends in Infrastructure

Will the Coronavirus Hit Infrastructure Airport Valuations?

Yes, likely.  For SARS (2003), many valuers did include a small ‘’specific-risk” or “alpha” adjustment to the airport valuations to take into account the expected slowing in volumes and the uncertainty associated with the impact, which is likely to be the same treatment for the Coronavirus. However, unlike with SARS, China is a much more significant player in the global and domestic economy and China is a major growth driver for Australian airports.  Further the travel bans to and from China and the suspension of flights to and from China are significant measures taken.  For these reasons we expect to see a more severe impact to volumes than with SARS. However, importantly we have observed with other significant “disruptions” to travel such as SARS, volcano ash clouds, the GFC, that longer-term, volumes return to pre-disruption growth levels, which is the expectation for the Coronavirus.  Further, airports are typically moderately geared relative to other infrastructure assets, which should assist them to trade through short- term passenger weakness.

Unlisted Domestic Airport Valuations Go Up… And Up

On average, domestic airport valuations rose over December 2019, fueled by recent transaction pricing observed in Australia (think Hobart Airport) and other European transactions, and supported by listed airport valuation multiples.  Also assisting sentiment and de-risking major Australian Airports, the Productivity Commission (PC) issued its Final Report on the Inquiry into the Economic Regulation of Airports, which concluded the regulatory framework remains fit for purpose with the Australian Government agreeing with the PC’s findings.

UK Regulated Water Assets – Is the Worst Behind Us?  

Regulation of UK water assets have been challenged over recent times with a notable decline in the allowed return.  However, PR19 Final Determination was published in late December 2019 (for the 2020-2024 period), and although a lower allowed return was published, the final determination saw improved cost allowances from earlier drafts, which better aligns water companies to achieve performance requirements.  That said, the final determination will still pose a challenge for the industry. Another upside for the industry came about in December 2019, with the successful election of Boris Johnson’s Conservative party, which was a positive for UK water utilities who had been threatened with nationalisation by the Labour party, providing for a more certain outlook for UK regulated assets.  This threat of nationalisation had also extended to rail assets and they too have benefitted from an uplift in sentiment.

GDP-linked Assets See a Slowdown

Whilst airports have experienced a strong valuation quarter, operationally we have seen a slowdown in volumes across some GDP linked assets such as ports and airports. Such a slowdown can be attributed to a number of factors including the completion of large infrastructure projects, drought conditions, low consumer sentiment and lower wage and employment growth impacting on GDP.

Australian Regulated Electricity Assets – Are They Getting a Jump Start?

After some relatively unexpected final regulatory determinations in 2019, which led to lower than expected revenues for Australian regulated electricity assets, there appears to be some glimmer of hope surfacing through the headline need for the grid reliability and security.  There have been a number of large projects which have required interaction with the regulator, including interconnectors between states and the co-operation and interaction with the regulator appears to have improved, which has also coincided with a change in personnel.

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JANA respectfully acknowledges the Traditional Custodians of the land where we work and live. We pay our respects to Elders past, present and emerging. We celebrate the stories, culture and traditions of Aboriginal and Torres Strait Islander Elders of all communities who also work and live on this land.