In this article, Noël Amenc, Associate Professor at EDHEC Business School, discusses the financial difficulties faced by Thames Water, a major water utility company, and explores the reasons behind the significant loss in value that was recognized at the end of 2022. The article highlights that many stakeholders were surprised by the size of the loss in value given that recent transactions were based on high and even rising valuations.

It is also suggested that the failure to recognize this loss in value in investors’ financial statements in a timely manner raises questions about how to value such infrastructure assets. It emphasizes the importance of using methodologies that accurately account for the reality of the risk factors to which these investments are exposed and the market dynamics of associated risks. He highlights that in infraMetrics Thames Water’s volatility and other metrics have always been high.

“Indeed, Thames Water’s volatility and value-at-risk have always been high in relation to various infraMetrics benchmarks, including its closest peers, namely other regulated utilities companies.”

Read the full article here.