Q1 2023 infraMetrics Data Release – Demand for infrastructure assets supports valuations despite higher rates

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Q1 2023 infraMetrics Data Release – Demand for infrastructure assets supports valuations despite higher rates

2 minutes
April 24, 2023 7:07 pm

The infrastructure asset class showed resilience this quarter amid various macroeconomic and geopolitical headwinds with both infrastructure equity and debt showing positive returns. High demand for unlisted infrastructure continues to support asset values.

The infra300® index, which tracks a representative global sample of unlisted infrastructure equity investments worth more than $300bn, had a 8.81% total return in Q1 2023 (local currency). The interest rates were quite volatile over the quarter but a decline in equity risk premia, which is back to its 2019 level, drove valuations higher with a global average EV/Ebitda ratio north of 13x. Transport (IC60) companies contributed the most to the infra300 index return in Q1 2023 after a 56bps drop in their equity risk premia. Likewise, valuations in core infrastructure market increased over the quarter as their equity risk premia dropped by 40bps over the quarter and average discount rates stand at 8.2% as of March 2023.

On the credit side, infra debt yields came down by about 30bps over the quarter. As a result, the flagship infraMetrics debt index, the infra300® Debt index, returned 2.63% in Q1 2023  in local currency. This index represents the performance of the most recent senior debt instruments issued by the constituents in the infra300® index and includes 380 senior debt instruments with a market capitalisation of $103bn.  The yield-to-maturity for the global infrastructure debt market is lower over the quarter at 5.7% even though the credit spreads remain elevated at 208bps.

The new infraMetrics Investor Peer Groups Benchmarks (2022 vintage) was also released and compare 16 investor peer group strategies defined by allocation to different infrastructure segments: in Q1 2023, North American investors in unlisted infrastructure equity outperformed their peers from other regions with most of the return originating from their oil and gas and transport investments.

Turning to infraMetrics’ Valuation and Deal Analytics , the equity risk premium of global unlisted infrastructure equity is down by 48bps over the quarter, with the reduction in risk premium, combined with higher cash flow forecasts, driving infrastructure valuations over the last one year, and more than offsetting the negative impact of interest rates.

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