Listed infrastructure investments are typically valued relative to their net asset value (NAV). Over the past decade, they have by and large traded at small premiums to their NAVs. This reflects the market perception that the outlook has been more favourable for NAV returns and greater marginal demand for them as investments.
In recent years, however, a combination of factors, including high inflation, rising interest rates, and falling energy prices (in the case of renewables) have weighed on share prices despite underlying NAVs remaining relatively stable. As such, many of these opportunities now trade at significant discounts to NAV. These discounts also potentially reflect more attractive yields available today from cash and fixed income, as well as concerns that prospective NAVs could decline.
Chart 1: Average pricing relative to NAV for listed infrastructure universe
Looking forward, we do not expect these discounts to NAV to persist in the medium term for several reasons. Firstly, transactional evidence from many infrastructure investment companies at or above holding values (see below) is helping to validate NAVs for a wide range of infrastructure investments.
| Asset type | Fund | Date | Size (£m) | Sale price vs asset value |
| Toll road | HICL | Apr-23 | 69 | Not disclosed |
| Waste disposal business | 3IN | Jul-23 | 188 | 31% |
| Wind farm | TRIG | Aug-23 | 22 | 26% |
| School PFI project | HICL | Sep-23 | 37 | 8% |
| Four PPP projects + OFTO | HICL | Sep-23 | 204 | "Small prem" |
| Wind farm | ORIT | Oct-23 | 90 | 17% |
| PBSA project | HICL | Nov-23 | 18 | "Small prem" |
| Solar farm | FSFL | Nov-23 | 24 | 21% |
| Solar development | NESF | Nov-23 | 15 | 100% |
| OFTO | INPP | Dec-23 | 200 | "Modest premium" |
| Toll road | HICL | Feb-24 | 184 | 30% |
| Irish onshore wind | TRIG | Mar-24 | 53 | 15% |
| Onshore wind farms | TRIG | Mar-24 | 51 | 4% |
| Solar farm | NESF | Jun-24 | 27 | 14% |
| Swedish Onshore Wind | ORIT | Jul-24 | 62 | 2% |
| German offshore wind | TRIG | Aug-24 | 85 | 9% |
| Gas-to-grid AD facilities | FGEN (JLEN) | Aug-24 | 68.1 | "In line" |
| Healthcare PPP | INPP | Aug-24 | 14 | "In line" |
| Norwegian onshore wind | AERI | Sep-24 | 22.6 | 11% |
| UK solar | BSIF | Sep-24 | 70 | "In line" |
| US Housing for Military | INPP | Sep-24 | 30 | "In line" |
| Biogas plants | 3IN | Oct-24 | 35 | 15% |
Source: abrdn, Numis, September 2024.
Secondly, we have seen increasing corporate activity reflecting current discounts to NAV. We have been encouraging companies to reduce leverage, dispose of assets, and buy back shares when at discounts to NAV. Positively, more companies have introduced asset recycling programmes and initiated share buybacks. We believe these measures are value accretive for long-term shareholders.
Lastly, based on our five-year expected return framework, we forecast these assets will trade broadly in line with NAV by the end of the period. Buying at today’s discounts therefore enhances the underlying expected returns from the assets. Our latest long-term return estimates also highlight how attractive we believe the expected return potential is from these assets compared with traditional assets.
Final thoughts…
We continue to see compelling long-term return opportunities from listed infrastructure. The asset class offers exposure to long-term cash flows that are typically stable (limited economic sensitivity) and often inflation linked. As such, in a world of slower growth and stickier/volatile inflation, we would expect infrastructure as an asset class to perform relatively well through attractive and growing income generation. There’s also the potential for capital growth in certain circumstances. Long-term returns and income are further enhanced by the current discounts to NAV across the sector. These are characteristics that we think should be beneficial for portfolios in a range of economic scenarios.