Q3 2023 quarterly valuation update for the energy and infrastructure sector

Thu 23 Nov 2023

Welcome to the Q3 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 how country risk premiums are used in infrastructure valuations.

Three key themes from Q3 2023

The cost of debt has settled in a new range, and asset owners are having to adapt to this : Long-dated gilt yields indicated a relatively stable trend over the past quarter, which therefore crystallises the rising yields experienced in H2 2022. Private debt transactions are still taking place, but asset owners are having to accept the higher cost.

This is starting to feed into the cost of equity despite continuing high competition for assets : Strong competition for energy and infrastructure assets has limited the extent of the increase in asset discount rates to date. But the capital markets are expecting more to come and transactional trends are starting to bear this out.

Valuations need to account for country risk, but the size of the risk premium needs to account for asset-specific factors : Infrastructure and energy assets may have full exposure to the risk of the country they are located in, but this is not always true. Sometimes assets are not exposed to the local economy and may be protected from political risks. A valuer therefore needs to apply judgement in assessing the country’s risk premium.

Download our quarterly valuation update for Q3 2023