Q4 2022 quarterly valuation update for the energy and infrastructure sector

Fri 03 Mar 2023

Welcome to the Q4 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 valuing new sectors by comparing and contrasting return and risk expectations with established infrastructure sectors.

Three key themes from Q4 2022:

Slight reduction in the gilt rates in Q4. Following significant rises earlier in 2022, the cost of debt remained at elevated levels in Q4 2022. But the trajectory was more stable, with signs that interest rates and inflation rates may have peaked or be close to peaking in a number of markets.

Market appetite remains positive; Increased discount rates across energy and infrastructure sector. The demand for quality infrastructure and energy assets remained strong in Q4. But the higher cost of debt had started to feed into higher reported equity discount rates across sectors. In some transactions, there were gaps emerging between buyer and seller expectations.

Projects in new sectors can be valued by comparison with more established sectors, while accounting for relative risk and market maturity. New sectors can be challenging to value. We have noted that risks can often be compared in practice to more established sectors and this is a key valuation approach. As a sector becomes more established, discount rates often reduce: this is both because project risks reduce but also because of changing market dynamics.

Download our quarterly valuation update for Q4 2022