Global Listed Infrastructure - is it still essential? - October 2020 Meet the Manager with Heathcote - Heathcote ...
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Global Listed Infrastructure – is it still
essential?
October 2020
Meet the Manager with Heathcote
Disclaimer
This presentation was prepared by Maple-Brown Abbott Limited (Maple-Brown Abbott) ABN 73 001 208 564, Australian Financial Service Licence No. (AFSL) 237296, is intended
to provide general information only, and does not have regard to an investor’s investment objectives, financial situation or needs. The content does not constitute advice and
should not be relied upon as such. Our presentation, including comments we make about individual stocks, is intended only to explain our approach to managing funds. In
discussing individual stocks or other investments we do not make any recommendation or give any statement of opinion that is intended to influence anyone in making an
investment decision. Investment advice should be sought in respect of individual circumstances. Performance figures are before tax and after management fees. Past
performance is not a reliable indicator of future performance.
Backtested performance for the Focus List is developed with the benefit of hindsight and has inherent limitations. Specifically, backtested results do not reflect actual trading or
the effect of material economic and market factors on the decision-making process. Actual performance may differ significantly from backtested performance. Backtested
results are adjusted to reflect the reinvestment of dividends and other income, and are presented gross of fees, taxes and transaction costs. No cash balance or cash flow is
included in the calculation.
Maple-Brown Abbott Limited does not make any representation or give any guarantee as to the future performance or success of, the rate of income or capital return from, the
recovery of money invested in, or the income tax or other taxation consequences of, any investment. Units in both the Maple-Brown Abbott Global Listed Infrastructure Fund
(Fund) and the Maple-Brown Abbott Global Listed Infrastructure Fund – Hedged are issued by MBA (Hedged Fund). Before making a decision whether to acquire, or to continue
to hold an investment in either of the Fund or the Hedged Fund, investors should obtain and consider the current Product Disclosure Statement for the Fund, available on
MBA’s website maple-brownabbott.com.au.
Stock examples provided are for general illustration purposes only. They are not a recommendation to buy or sell any security.
This presentation:
Has been prepared solely to provide general information about Maple-Brown Abbott Limited and the Maple-Brown Abbott Global Listed Infrastructure Fund (Fund) to potential
investors in New Zealand.
Was not prepared for any other purpose or for any other person.
Is not a recommendation in respect of financial products, nor is it any other form of financial advice.
Is not an offer of financial products to any person (whether in New Zealand or elsewhere).
Units in the Fund are offered in accordance with the trans-Tasman mutual recognition regime, which allows the offer of Australian financial products in New Zealand if certain
requirements are satisfied. If investors wish to make an application for units in the Fund, they should obtain a copy of the current Product Disclosure Statement for the Fund on
the offer register at www.business.govt.nz/disclose before making any decision to invest.
2
Maple-Brown Abbott’s competitive advantage
Tight definition of core infrastructure assets
1 ✓ Core infrastructure leads to:
▪ Lower volatility
▪ Inflation protection
▪ Income stability
✓ Rigorous focus on Management and Corporate
Governance
Core Stringent
infrastructure capacity
2 Strict capacity approach
✓ Unconstrained investment management
✓ Currently managing approx. US$3.4bn, compared to
capacity limit of US$7.0bn
Alignment of
interest
3 Dedicated team, long-term alignment
✓ All Portfolio Managers have significant and direct equity
stakes in business
✓ Each maintains significant investments in GLI funds
✓ All investment staff dedicated to GLI strategy
3
Infrastructure is defensive?
Historically yes, but….
Infrastructure has historically outperformed Global Equities during market weakness, but
remember that past performance is not a guarantee of future results (heard that one
before?)Upside/Downside Capture (Avg. Monthly Returns %, USD)
4.0%
3.1%
3.0% 2.4%
2.0%
▪ Closely tracked Global Equities in
1.0% positive markets
0.0%
-1.0%
▪ Outperformed in majority of
down months
-2.0%
-1.9%
-3.0%
-4.0% -3.4%
-5.0%
Up Markets Down Markets
Global Equities Global Infrastructure
Months
Infrastructure1
Months
Infrastructure1
Avg. Monthly
Capture Ratio2
▪ Disproportionately skewed
Outperformance
Outperformed Underperformed downside protection in weak
Up Markets 38% 62% -0.9% 73% markets as demonstrated by
Down Markets 79% 21% 1.7% 56% down market capture ratio
Source: Maple-Brown Abbott.
Calculations based on monthly data over 31-Dec-2005 to 30-Sep-2020. Returns have been compared to the MSCI World Index, in USD terms.
1 FTSE Global Core Infrastructure 50/50 Index TR USD
2 Upside/downside capture ratio indicates whether a given fund or index has outperformed--gained more or lost less than--a broad market benchmark during periods of market strength and
weakness, and if so, by how much. An upside capture ratio over 100% indicates a fund/index has generally outperformed the benchmark during periods of positive returns for the
benchmark, whilst a downside capture ratio of less than 100% indicates that a fund/index has lost less than its benchmark in periods when the benchmark has generated negative returns.
5Infrastructure performance in 2020
The Covid-19 impact on Global Concessions (Toll Roads & Airports) and North American Pipelines has been the
main driver of negative performance for the infrastructure sector this year
Year-to-date returns (%)
20.0%
9.6%
10.0%
1.0%
-
-3.2%
(10.0%)
-10.3%
-12.1%
-14.5%
(20.0%)
-20.9%
-23.0%
(30.0%)
-31.8% -33.1%
(40.0%)
S&P Global MBA GLI FTSE Global Core MSCI World Australia UK North American Global North American Global
Infrastructure Strategy Infrastructure (Local) Regulated Regulated Regulated Toll Roads Pipelines Airports
(AUD-Hedged) (AUD Hedged)* 50/50
(AUD-Hedged)
Source: Bloomberg as at 30-Sep-20.
Notes: Sector returns shown above represent the simple average total holding period returns (in local terms) of individual GLI Focus List stocks.
* MBA GLI Strategy performance relates to the Maple-Brown Abbott Global Listed Infrastructure Hedged Composite in AUD. Returns are presented gross of management fees, custodial
fees, and withholding taxes but net of all trading expenses. Maple-Brown Abbott claims compliance with the Global Investment Performance Standards (GIPS®). For further information
please refer to the Disclaimer.
6Regulated Utilities – still essential
57% of the Fund
We’ve been buying, particularly in the US:
▪ Regulated water, gas and electricity networks remain essential and have not been materially impacted
financially by COVID-19
▪ Capex plans remain unchanged
▪ Renewable energy transition is net beneficial
▪ Growth and dividends ahead
7Toll roads and airports – where are all the travellers?
Concessions traffic in 2020
Traffic Performance (% change vs equivalent period of 2019)
40%
20% Toll Road - Sydney (Hills M2)
Toll Road - Melbourne (CityLink)
- Toll Road - Brisbane (Gateway)
Toll Road - Washington (495 Managed Lane)
(20%) Toll Road - Italy (ASPI)
Toll Road - France (SANEF)
(40%) Toll Road - Brazil (Atlantia + Abertis)
Toll Road - Toronto (407ETR)
(60%) Airport - Rome (ADR)
Airport - Sydney (Syd Airport)
(80%)
Airport - Germany (Frankfurt Airport)
Passenger Rail - UK / France (Getlink Eurostar)
(100%)
Truck shuttle - UK / France (Getlink Eurotunnel)
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20
▪ Airports are more prone to shocks than toll roads, but this global pandemic is an unprecedented shock of
uncertain duration for the airport sector
▪ Toll roads have been also been hit, but the impact is shorter-term in nature and the recovery more
predictable. However, there are some longer term considerations
9Toll roads
Performance comparison
▪ Toll roads (with the exception of Transurban and Macquarie Korea Infrastructure
Fund) have underperformed the infrastructure sector year-to-date
▪ “Second wave” concerns have seen toll roads underperform over the September
quarter
Year to date returns (%)
-
(5.0%) -2.2%
-4.3%
(10.0%)
(15.0%) -12.1%
(20.0%)
-21.1% -20.8%
(25.0%) -22.0%
-25.2%
(30.0%) -27.7% -27.4% -26.7%
-30.0%
(35.0%) -31.7%
-33.7%
-35.4%
(40.0%)
FTSEGlobal
FTSE GlobalCore Atlantia ASTM CCR Jasa Marga ALEATICA Ecorodovias Vinci Getlink Ferrovial Atlas Bangkok Transurban Macquarie
Core 50/50
Infrastructure Arteria Expressway Korea
Infrastructure
(AUD-Hedged) Infrastructure
50/50 Fund
(AUD-Hedged)
Source: Bloomberg as at 30-Sep-20.
10Toll roads
Short-term pain
Ontario’s 407, March 2020
2020 Observations: Melbourne’s Citylink, April 2020
▪ Lockdowns the key driver Public transit - traffic (Apple Mobility Data)
140%
– Public Transport has lost market share and this will speed the road traffic
recovery 120% High frequency data suggests
public transportation has
– Airport links have suffered 100% seen a slow recovery in traffic
– Roads with jobs where Working From Home (WFH) is difficult have 80%
outperformed 60%
(e.g. French regional roads vs large city commuter roads)
40%
– Commercial traffic (freight) has been relatively resilient (positive revenue
20%
mix)
0%
▪ Pricing fixed, with the exception of Managed Lanes which have suffered Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20
– Roads with a free alternative nearby have underperformed (North America Brisbane (AU) Melbourne (AU)
Sydney (AU) Toronto (CA)
Managed Lanes and the Canadian 407)
▪ Operating costs are ‘sticky’ and operating leverage works both ways
11
▪ Dividends have been cut in some cases to reflect lower cash flowsToll roads
Privileged position maintained, but some rule changes
MBA GLI positioning:
▪ We forecast the average road having traffic volumes recovered by the December half 2021
▪ In 2020, we have maintained our toll road exposure despite relative weakness at just over 8%
(versus the FTSE Global Core Infrastructure 50/50 index weight = 10%)
▪ Year to date changes mostly include switching from weaker balance sheets (Atlantia) to stronger
balance sheets (Vinci)
Longer term and valuation considerations:
▪ Duration of concession is always important
▪ Roads with pricing power (Managed Lanes) will suffer both tariff and volume weakness until recovery is
complete
▪ Interest rates likely to be even lower for longer which impacts the discount rate and with toll roads
keeping the refinancing benefit
▪ Governments will be looking to stimulate economies in the recovery which could lead to capex
opportunities and concession extensions
▪ Acceleration of WFH trend will mostly impact city commuter roads with pricing power, albeit with an
offset of less congestion at peak times
12Investment outlook
Where to?
Perspective on interest rates Global infrastructure investment environment
▪ Infrastructure asset valuations are sensitive to real ▪ Our largest category, regulated utilities are still
‘essential’
interest rates
▪ Infrastructure being the backbone of the economy
▪ Monetary policy has effectively reached its limits in most will play a role in the recovery of economies – focus
developed economies for adding macroeconomic on capex plans and government programs that help
stimulus. investment
▪ Fiscal stimulus in response to COVID-19 has helped to ▪ Growth and inflation outcomes will be highly
soften the downturn, but will need to be sustained to divergent across economies and sectors
support the recovery. – Based on new COVID-19 cases, stringency of
▪ Continue to assume that long term interest rates lockdowns, potential vaccine developments,
normalise over the coming 5 years, but remain lower nature of policy support measures, sectorial
composition of economy, etc.
than previous cycles.
▪ Global trade and political populism likely to remain
– Supportive for long rate cycle regulated utility and tower ongoing risks:
asset valuations, but downside risk if/when curve
eventually steepens – US Presidential election in 2020
▪ Income from assets (dividends) is harder to find ▪ Geopolitical tensions remain a wild-card, particularly
in the Middle East and Russia.
▪ Market mispricing of interest rate sensitivities can create
opportunities for specialist infrastructure investors ▪ Increasing awareness of economic impacts of
climate change – potential increasing action and
incentives for infrastructure investment.
▪ Individual stock opportunities remain for focused,
active investors
14Significant ongoing capital expenditure to drive
growth
Plentiful organic growth opportunities for listed infrastructure
▪ Aggregate capex by Focus List companies forecast to more than US$200bn, growing on a record 2019
▪ Spending almost 10% of current market capitalisation
We favour rate base investments, and organic expansions of existing networks
Source: Bloomberg; MBA calculations.
15Attractive dividend outlook despite recent interest rate
moves
Current portfolio gross dividend yield ~3.9%, longer term growth outlook remains robust
▪ Earnings continue to grow above inflation across most markets, capex driving future dividend growth
US 10 Year Real Yield (%)
3.5%
3.0%
2.5%
2.0%
Real Yield (%)
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
2007 2008 2009 2010 2011 2012 2012 2013 2014 2015 2016 2017 2018 2019 2020
Our valuation models assume long term rates continue to rise, despite the shorter term
outlook looking challenged with yields compressed
Source: Bloomberg; MBA calculations. Data to 30 September 2020.
16Valuations fair given greater risks to global equities’ earnings and low rate
Attractive to global equities when accounting for:
▪ Strong relative outperformance of Global Equities. However, bond yields have reduced through the time period,
which should have seen an upward rating of the longer-dated infrastructure assets; and
▪ Earnings estimates have come down more for global equities than for infrastructure.
GLI Focus List relative to Global Equities - Forward EV/EBITDA
1.4
1.3
1.2
EV/EBITDA (NTM)
1.1
1.0
0.9
0.8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Focus List / Global Equities Average
Note: The data in the above chart uses the then current broker consensus estimates, and has been sourced from Bloomberg. It is substantially complete,
although not surprisingly is missing a few data points due to either the stock not yet being listed or there being insufficient consensus estimates at any point in
time. We have reviewed the data and are confident that the results are not being distorted by any extreme individual data points. Global Equities relates to the
MSCI World Index, sourced from Bloomberg. Data as at 30 September 2020.
17Portfolio positioning
What we currently like: Portfolio Weights as at 30 September 2020
1. In the current economic environment, the focus is on
infrastructure companies that have revenue resilience and/or
strong balance sheets and liquidity to wait-out disruption
2. Asset recycling, utilising private markets valuation gap
(26% of portfolio holdings in the last 12 months)
▪ Asset sales by Dominion, Enbridge, Kinder Morgan, National Grid,
Sempra, TC Energy, Vopak, Williams Co
▪ Significant discounts remain between listed & private peers
3. Listed European infrastructure (27% of portfolio) remains
attractively valued
▪ Concession infrastructure (15% of portfolio) – airport, toll road,
railway concessions; discrete stock opportunities created by
unique structural changes (e.g. Getlink / EU Airports / Vinci)
▪ UK regulated utilities (12% of portfolio) – sentiment not fully
recovered from prior nationalisation fears, albeit bounced from
trading multiples at historical lows
4. North American Regulated Utilities (40% of portfolio) –
Regulated electric, gas and multi-utility assets
▪ Recent sell-off in defensive, North American regulated names
(along with the broader market) has been largely unwarranted
▪ Current spreads between bond yields and utility dividends are at
historical lows, presenting attractive buying opportunities
18Investing with Maple-Brown Abbott Global Listed
Infrastructure
▪ Experienced and aligned investment team
▪ Pure and focused approach to listed infrastructure
▪ Strong risk adjusted performance record
▪ Disciplined risk and governance framework
19Disclaimer
This presentation was prepared by Maple-Brown Abbott Limited (Maple-Brown Abbott) ABN 73 001 208 564, Australian Financial Service Licence No. (AFSL) 237296, is intended
to provide general information only, and does not have regard to an investor’s investment objectives, financial situation or needs. The content does not constitute advice and
should not be relied upon as such. Our presentation, including comments we make about individual stocks, is intended only to explain our approach to managing funds. In
discussing individual stocks or other investments we do not make any recommendation or give any statement of opinion that is intended to influence anyone in making an
investment decision. Investment advice should be sought in respect of individual circumstances. Performance figures are before tax and after management fees. Past
performance is not a reliable indicator of future performance.
Backtested performance for the Focus List is developed with the benefit of hindsight and has inherent limitations. Specifically, backtested results do not reflect actual trading or
the effect of material economic and market factors on the decision-making process. Actual performance may differ significantly from backtested performance. Backtested
results are adjusted to reflect the reinvestment of dividends and other income, and are presented gross of fees, taxes and transaction costs. No cash balance or cash flow is
included in the calculation.
Maple-Brown Abbott Limited does not make any representation or give any guarantee as to the future performance or success of, the rate of income or capital return from, the
recovery of money invested in, or the income tax or other taxation consequences of, any investment. Units in both the Maple-Brown Abbott Global Listed Infrastructure Fund
(Fund) and the Maple-Brown Abbott Global Listed Infrastructure Fund – Hedged are issued by MBA (Hedged Fund). Before making a decision whether to acquire, or to continue
to hold an investment in either of the Fund or the Hedged Fund, investors should obtain and consider the current Product Disclosure Statement for the Fund, available on
MBA’s website maple-brownabbott.com.au.
Stock examples provided are for general illustration purposes only. They are not a recommendation to buy or sell any security.
This presentation:
Has been prepared solely to provide general information about Maple-Brown Abbott Limited and the Maple-Brown Abbott Global Listed Infrastructure Fund (Fund) to potential
investors in New Zealand.
Was not prepared for any other purpose or for any other person.
Is not a recommendation in respect of financial products, nor is it any other form of financial advice.
Is not an offer of financial products to any person (whether in New Zealand or elsewhere).
Units in the Fund are offered in accordance with the trans-Tasman mutual recognition regime, which allows the offer of Australian financial products in New Zealand if certain
requirements are satisfied. If investors wish to make an application for units in the Fund, they should obtain a copy of the current Product Disclosure Statement for the Fund on
the offer register at www.business.govt.nz/disclose before making any decision to invest.
2021
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