The Q2 2021 release of the EDHECinfra indices incorporates the views and asset-level revenue forecasts of our team of financial analysts. This report updates the Q1 2021 report and is presented following the TICCS® taxonomy of infrastructure companies. Each quarter, the team reviews the revenue forecasts of 650 companies that are currently live in the EDHECinfra universe, based on the latest reports, historical data, sector knowledge and contributed data.

by Jack Lee and the team

Overview: further cash flow projection downgrades in the wake of the continued impact of Covid-19

Despite progress with the development and provision of Covid-19 vaccines, there is still little clarity on the evolution of lockdown restrictions in most of the 25 countries in the EDHECinfra universe. On this basis, the expected impact on the future revenues of infrastructure companies remains depressed for the next 12-36 months.

That said, the majority of the forecasts we made in Q1 2021 remain applicable, with the exception of those for airports and road companies.

IC6010 Airport Companies

In this quarter, we expect to make a further decrease in our revenue projections as compared to previous quarter. Industry-wide revenue passenger-kilometres (RPKs) were down 65.4% on pre-crisis levels (April 2019) as international travels still remain weak due to the tight travel restrictions in place (IATA, 2021a). That said, air travel demand improved in April 2021 when compared with March 2021, supported by a rebound in domestic travel. The recovery of domestic and international markets is dependent on future restrictions, vaccination rates and the risk-aversion of passengers (IATA, 2021b). We expect only a gradual recovery in travel demand in late 2021 with numbers not returning to pre-Covid level until 2023.

IC6050 Road Companies

In Europe and US, the decrease in revenue forecasts remain the same as Q1 2021. However, in Malaysia, revenue is expected to decline even further, by 10% in 2021 and 5% in 2022 when compared with Q1 2021. This reduction is due to the Movement Control Order and total lockdown imposed during 2021, which significantly restricts mobility.

Our Q2 2021 revenue projections for other sectors are unchanged from our Q1 2021 assessment.

As before, the most impacted segments are merchant (BR-20) and regulated (BR-30) companies. In the absence of long-term revenue contracts, these investments are susceptible to the impact of external events. By contrast, contracted business models (BR-10), have been far more insulated from the impact of Covid-19 on cash flows. Despite this, risk premia and discount rates have increased, impacting valuations of these firms too.

As of this quarter, companies in all geo-economic segments (TICCS Pillar 4) are included in our revision of the revenue forecast due to Covid-19, as the pandemic has spread.

The following table lists those industrial sectors that we consider to be experiencing the most material impact:

References

• IATA (2021a). Air Passenger Market Analysis March 2021. https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-monthly-analysis—april-2021/
• IATA (2021b). An almost full recovery of air travel in prospect. https://www.iata.org/en/iata-repository/publications/economic-reports/an-almost-full-recovery-of-air-travel-in-prospect/