A series of recent transactions, from Gatwick to the sale of the Altice telecom towers, poses the risk of artificial price inflation. But according to a study by Edhec, relative valuations are rather declining.
A price bubble in infrastructure? According to some observers, the latest transactions attest to this. Vinci has offered control of Gatwick airport for around 8 times its income, compared to an average of 2.5 to 3 times on average for this type of asset. The Chinese Casil Europe wants to sell its 49.9% in Toulouse airport 45% more expensive than their acquisition price, four years ago. Patrick Drahi gave up his laps for a record 18 times the Ebitda. And in fiber, the Covage network and its 35 million euros of EBITDA is on sale for 1 billion euros.
In a study presented Tuesday at the International Infrastructure Forum in Berlin, Frédéric Blanc-Brude, director of the Singapore-based Edhecinfra research institute, puts it into perspective. ” The phenomenon is not new. Valuations in infrastructure have been increasing for the past fifteen years. But today there is no artificial price bubble, we have actually entered a new era ”.
Investors willing to pay for security
These high prices, he explains, correspond to the low risk associated with the infrastructure. “Given the market volatility, this management strategy is necessarily valued on high ratios because investors are ready to pay for security”.
According to the study, which surveys more than 680 transactions worldwide since 1995, the real price peak was actually reached two years ago. “For ten years, investors have gradually moved towards this asset class, considered safer, and have been slow to find the right price because they lacked information. For two years, however, we have seen a plateau in average valuations ”, he adds.
In 2009, infrastructures such as airports, ports and power stations recorded a sharp drop in their income. But unlike stocks on the stock exchange, the effect has not passed through to asset prices, as there have been very few transactions.
Risk on future returns
In 2011, when infrastructure revenues stabilized or even declined in some sectors, relative average prices started growing rapidly until 2016, the study explains.
Not all sectors have been affected in the same way. The values of the electricity sector industry fell again from 2015, while that of airports saw a new peak. This is evidenced by the sales of State shares in the airports of Nice and Lyon for 23 times and 19 times their EBITDA.
Most «In 2017, explains Frédéric Blanc-Brude, risk factors such as project indebtedness (credit risk) and the yield curve put a brake on price growth. Average valuations have therefore stabilized ”.
Relative to growing incomes, valuations have therefore rather fallen, in relative terms. Which, according to him, will pose a problem for managers: “With prices constantly rising, it was easy to perform. This will now prove to be harder and it will be necessary to better justify the risks taken for the returns obtained ”.