Infrastructure & Transport

Infrastructure sits between capital markets and essential services. Four flavours matter: regulated utilities (water, energy networks), transport (tolls, airports, rail, ports), social infrastructure (PFI schools, hospitals), and digital infrastructure (towers, fibre, data centres). Each runs on a different revenue engine. PPP/PFI pays a fixed unitary charge regardless of usage, so demand risk is zero. Regulated utilities have allowed revenue set by Ofwat or Ofgem every five to eight years, returns built on the Regulated Asset Base. Tolled roads and airports carry demand risk directly: traffic and passengers determine receipts, and 80% of greenfield toll roads overestimate Year 1 traffic by 20-30%. Higher gearing works here, typically 60-80% net debt to RAB, because regulated cashflows are predictable, asset lives match long debt tenors, and dividends are constrained. Covenants sit around ICR above 1.75x and DSCR above 1.3-1.6x. RAB multiples of 1.2-1.6x are typical for utilities; airports trade 14-20x EV/EBITDA, towers 20-30x. Real diligence pain: regulatory resets (Ofwat cut allowed cost of equity from 4.8% to 2.75%, destroying 30-40% of equity value in one cycle), contractor insolvency on fixed-price EPC deals, political intervention including windfall taxes, and inflation linkage mismatches when RPI swaps to CPI. Read the concession. Model the downside.

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