Infrastructure sectors - valuing different asset types

Hi,

I am currently prepping for an infra PE interview, and would be grateful if anyone here can share thoughts/experience regarding what the different considerations/drivers are when valuing different types of assets within the infrastructure sector. E.g. how to value a hospital vs. a solar PV plant vs. a water de-salination plant.

Would be grateful for any ideas or pointers to good websites/sources of info that can help me in this respect.

Thank you!

 
Best Response

Recommend you peruse this thread (https://www.wallstreetoasis.com/forums/overview-of-infrastructure-priva…). It’s not valuation specific, but it covers a lot and may provide insights that will help with your interview. Additionally, take a step back and look at the investment strategy/previous deals of the fund you're interviewing for. Their sector focus may help you narrow your thought process as infrastructure is quite broad.

At a high level, most ‘traditional’ infrastructure assets tend to be contractual in nature. Examples can vary from a concession arrangement, to construct/operate a brownfield asset to a PPA that outlines the sale of energy to an offtaker.

When evaluating these types of traditional assets, an equity investor’s main concern are cash flows, which are a function of meeting return hurdles. Some high-level considerations that will drive value are the structure of the concession, the macroeconomic environment (things like how many people are driving on your toll road or where power prices headed etc.), capex requirements, and potential for operational improvements (margin growth). Ultimately these things are a reflection of the underlying risk of the asset and will determine the kind of financing that can be arranged, which will directly drive the cost of capital and return profile.

If you’re looking at regulated utilities, you can read into ER reports. Regulated utilities are another beast and are typically valued using multiples as they are only allowed a certain return on equity.

Bit of a ramble, but happy to do my best to address any specific questions. Good luck with your interview.

 

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