6.2 Infrastructure: Key Characteristics

Question 1

Infrastructure: distinctive characteristics

Fundamental Economics: …, Monopolistic Market positions, Regulated Entities, …, Low Operating Costs

Return Profile: Long-term Horizons,…, Stable Yield

Risk Profile: Low volatility of …, Resilience to Economic Downturns, Technology Risk, Low …

Answer 1

Inelastic demand; Capital-Intensive Setup

Inflation-Indexed Cash Flows

Operating cash flows; correlation with other assets

Question 2

Valuation methods for infrastructure| Discounted Cash Flows

▪ The value of an asset is determined by …
▪ Can be applied to all cash flows, taking into account … or any other change in the underlying development plan
▪ Requires …, an estimate of the infinite time value and an … for the appropriate risk
▪ ➔ very sensitive to modest variations in assumptions

Answer 2

discounting the value of its expected future cash flows

refinancing

detailed forecasts of long-term cash flows;adjusted discount rate

Question 3

Valuation methods for infrastructure| Cost of recent investment
▪ The … in an infrastructure asset by shareholder partners or investors can serve as a benchmark
▪ The relevance of this figure decreases with time as it …
▪ In a dynamic environment, it is important to consider …

Answer 3

transaction price of a recent investment

reflects the conditions prevailing at the date of the transaction

the context of a transaction

Question 4

Valuation methods for infrastructure| Sector benchmarks

Sector specific valuation criteria:

…(electricity/natural gas); Price/kwh (power generation); Total passenger charges (airport companies); Average-toll km (toll roads)

Sector benchmarks can be useful in specific cases, provided … are taken into account

Answer 4

Turnover per customer

costs and other intrinsic differences

Question 5

Valuation methods for infrastructure|Multiples

A multiple of … can be derived from an assumption about “stabilized” results generated from revenue
▪ Market multiples and transaction multiples are usually used in parallel with …, as “reasonableness” check

Answer 5

pre-tax earnings or EBITDA

discounted cash flow methodology

Question 6

Valuation of Infrastructure | Real Options

Real options
▪ Traditional discounted cashflow models tend to …, where there are so called real options embedded in the investments
▪ Real options involve dependence relations between the underlying asset, e.g.
▪ Option to delay
▪ Option to …
▪ Option to …
▪ Option to abandon
▪ Real options can add significant value, but…

Answer 6

underestimate the value of investments in complex environments

adjust; expand

make models more complex and multifaceted

Check slides 17for a business example

Question 7

Classification of risk linked to infrastructure assets

Answer 7

Political&Regulatory
Macroeconomic & Business
Technical

Check slide 18