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‘Insatiable demand’ for essential infrastructure to continue


Australian infrastructure assets such as airports, bridges and ports, known for their reliable income, are becoming the target of cashed-up overseas pension funds and private equity firms.

Ausbil Investment Management’s head of global listed infrastructure, Tim Humphreys, and the co-head of global listed infrastructure, Jonathan Reyes, have released a research note on the infrastructure sector and its outlook for the rest of the year.

While 2021 was a great year for M&A among ASX-listed infrastructure stocks, is this trend likely to continue?

Humphreys and Reyes agree that “there is insatiable demand for world-class ‘essential’ infrastructure assets by private investors. On current valuations, these investors are taking advantage of a compelling valuation arbitrage that presently exists between public and private markets; public markets are undervaluing infrastructure assets and this is making them ‘hot’.”

And its great news for shareholders, who stand to reap the benefits from M&A deals struck at a premium. However there is a flipside to this coin. As M&A heats up, it means that the Australian market will have fewer essential infrastructure investment options.

Ausbil names three remaining infrastructure plays that are attractive, on global infrastructure benchmark metrics, because of their high-quality assets, significant barriers to entry, and the appealing regulatory regimes in which they operate. These are AusNet Services (ASX:AST), Spark Infrastructure (ASX:SKI) and Sydney Airport (ASX:SYD), all of which are subject to takeover offers.

The fund manager says “the ASX-listed infrastructure space, at its height, had over 15 listed companies. Many of these companies were listed over the period spanning 1995 to 2010. Assuming the Sydney Airport, AusNet and Spark transactions complete in one form or another, there are potentially only going to be four ASX-listed infrastructure companies that meet Ausbil’s essential infrastructure criteria, listed on the ASX.”

The only remaining infrastructure plays on the ASX are Transurban (ASX:TCL), Atlas Arteria (ASX:ALX), APA Group (ASX:APA) and Auckland Airport (ASX:AIA).

Here are the top holdings in the portfolio as at 31 August 2021.

The message here is that Australia’s listed infrastructure sector is shrinking, making the remaining listed infrastructure companies highly attractive. The full opportunity in the essential infrastructure asset class awaits offshore for those who are keen to capture its benefits.

IN Partnership

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