By Peter Meany, Head of Global Listed Infrastructure at First Sentier Investors
We believe European, Asia Pacific and Latin American operators of toll roads represent exceptional value at current levels, with traffic volumes proving significantly more resilient than those of other transport infrastructure assets. While new coronavirus variants have clouded the near-term outlook, we remain confident that toll roads will lead a return to normal demand levels as economic activity levels continue to pick up.
We also like large-cap North American freight rail operators, which are unique and valuable franchises. Their wholly-owned track networks are high-quality infrastructure assets that can never be replicated. They typically operate under duopoly market conditions, with significant numbers of captive customers such as grain, chemical and auto producers giving them strong pricing power over long haul routes. Improving operating efficiency provides further scope to grow earnings.
In the airports sector, the emergence of the Omicron variant underscored how vulnerable many airlines remain to coronavirus-related disruption. However, we like higher quality European operators, such as Spain’s AENA, whose passenger mix is tilted towards leisure and VFR (visiting friends and relatives) travellers. These categories could see numbers rebound sharply as travel restrictions are lifted.
We remain conscious of the structural headwinds companies in the energy midstream sector could face as net zero initiatives gather pace.
