With the speed of the vaccine rollout in the developed world, the infrastructure sector will see improved visibility in cashflows from toll roads and freight rail, according to the report by ClearBridge Investments.
The ‘Valuation of Infrastructure Assets’ report found that valuations were expected to remain attractive on a medium to long-term excess return basis while
EV/EBITDA multiples and dividend yields were misleading for infrastructure stocks due to the significant but short-term reductions in earnings and dividend, which made them appear expensive.
Further to that, listed infrastructure would continue to provide attractive valuations when compared to unlisted infrastructure, but with the added liquidity and a greater opportunity set.
The report also found that challenges would continue with variant COVID-19 strains and vaccine supply constraints impacting mobility, as differentiation begun to occur within the infrastructure asset class but the essential nature of some of infrastructure assets, such as utility and its cashflows, would allow for far more predictability in outcomes.
“The outlook for traffic on commuter rail and airports remains limited but is expected to improve through 2021 and how some renewables valuations became stretched after strong performance in 2020,” portfolio manager at ClearBridge Investments Shane Hurst, said.
However, the key takeaways at a portfolio level included strong global economies and stimulus that saw transport and energy infrastructure continue their recovery, while renewables in the US and Europe took a pause.
As far as utilities were concerned, opposing forces of rising global bond yields (negative) and utilities were having some of the best growth prospects in decades (positive).
At the same time, valuations in some renewables became stretched, after very strong performance in 2020, while transparency of dividends remained high in utilities and were improving in transport infrastructure.
On top of this, regional divergences were starting to appear based on COVID status.
