Q4 2023 quarterly valuation update for the energy and infrastructure sector

Mon 04 Mar 2024

Welcome to the Q4 2023 edition of our quarterly valuation update, which provides a snapshot of some of the main publicly available valuation trends across the energy and infrastructure sector, covering both debt and equity metrics.

This quarter we continue to look at trends in debt and equity metrics relying primarily on publicly available information. In relation to the equity trends, we use the Mazars indices of listed infrastructure funds and listed renewable energy funds, compiled on the basis set out in Appendix 1 to this update.

In addition, this quarter we have included a spotlight on the challenges of valuing platform investments.

Three key themes from Q4 2023:

Reduction in cost of debt this quarter: Following a lengthy period of rising gilt yields, Q4 saw a partial reversal with yields ending 2023 lower than they were a year previously in some markets. This increases the implied risk buffer on discount rates and may have started to lead to an increase in debt transactional activity.

As investor sentiment improves and share prices in the energy and infrastructure sectors rise, the discount to NAV reduces: Share prices of listed funds started to respond to the reducing risk free rates. Listed funds continued to report increased discount rates used for valuation purposes but further reductions in the cost of debt may mean that these reported rates have now reached their peak for now.

The key reason for commanding a platform premium is the additional value that can be created for investors by the platform: Investors typically value companies in the sector at a premium to underlying asset values to reflect the benefits of scale, diversification and access to growth opportunities, There are many available approaches to sizing this premium, but public market evidence is currently difficult to apply.

Download our quarterly valuation update for Q4 2023:

To see the previous valuation update, go here.