Q1 2022 quarterly valuation update for the energy and infrastructure sector

03/06/2022.
Welcome to the Q1 2022 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 inflation, which has become an important economic issue around the world and is also a key input in energy and infrastructure valuations.

Three trends from Q1 2022

Rise in gilt rates and cost of debt. Due to increasing base rates caused by inflationary pressures, borrowing costs for new debt have started to increase.
Sustained high competition in energy and infrastructure sector. Asset valuations continue to be driven by the strong investment environment for infrastructure and energy assets. It is not yet clear that higher cost of debt is leading to higher cost of equity – although this is likely to change in our view.
Inflation touching historic highs; expected to increase ever further in 2022 before coming down in 2023. Rising inflation has been adding to the upward movement in asset valuations in the energy and infrastructure sector. But the impact is not uniform across assets and inflation can be more problematic for greenfield projects especially.