Q4 2024 quarterly valuation update for the energy and infrastructure sector - Spotlight on multiples in infra valuations

Three key themes from Q4 2024:

Rising Government bond yields, partly absorbed through lower spreads: The underlying cost of debt rose a little in the past quarter, driven by increasing gilt yields. The overall change was not dramatic; however, we would expect that if they continue to rise into 2025, we may start to see a more direct impact on discount rates and transaction volumes.

Listed funds trading at discounts to NAV but underlying asset valuations holding steady: Despite the trading performance of listed funds, underlying asset valuations have remained relatively steady in the past quarter, with little movement in discount rates. In the renewable energy space, lower power price forecasts have impacted modestly on asset values, but listed funds have continued to sell assets at valuations that are higher than the listed carrying values. 

Multiples can be an important part of a valuation analysis but sector knowledge is needed to apply them reliably: Variations in multiples are driven by asset and sector-specific factors that impact on risk and growth potential amongst other things. When applying multiples, understanding the EBITDA component is often critical. Forward EBITDA multiples or sector-specific multiples can be more useful than historic EBITDA multiples by providing more normalised results.