EDHEC finds infra firms have unique profile

After surveying more than 330 UK infrastructure firms, the French business school’s infra research unit found that these firms exhibit lower revenue volatility and higher dividend payouts.

Infrastructure firms are unique compared with other types of businesses in several ways, a study conducted by EDHEC Infrastructure Institute – Singapore (EDHECinfra), in collaboration with the Long-Term Infrastructure Investors Association, concluded after surveying more than 330 UK infrastructure firms.

“The results show that infrastructure firms […] exhibit lower revenue volatility, higher payouts, with considerably less correlation with the business cycle,” the two organisations said in a joint statement on Thursday.

The study is the first large-scale empirical analysis of the characteristics of revenue and profits of private infrastructure firms and used a set of hand-collected data including the cashflows of more than 330 UK infrastructure firms over the past 15 years.

“The significant difference of revenue volatility between infrastructure and non-infrastructure firms, strongly suggest that infrastructure firms are in a league of their own when it comes to both their business model and their dividend payout behaviour,” EDHECinfra director Frédéric Blanc-Brude said, adding that the results have implications for investment management and prudential regulation.

The study also found that three business models exist within the infrastructure space – contracted, regulated and merchant – and each have their own cash flow dynamics. However, they are more alike amongst themselves than compared with the rest of the corporate universe.

According to the statement, the next step is using these findings to calibrate cashflow models to develop fully-fledged infrastructure investment benchmarks.

EDHECinfra chose to focus solely on UK data “because they represent the largest, longest and most coherent set of infrastructure cashflow data available at this time, with the added advantage of corresponding to a single currency and regulatory environment, thus limiting the need to control for these dimensions in the analysis.”

However, data from infrastructure firms in other countries will be used in developing benchmarks. EDHECinfra's database has already covered more than 500 individual infrastructure assets from not only the UK, but also other OECD countries and emerging markets, a spokesperson for the institute told Infrastructure Investor. “We are still actively building this database (which we will be using for our future studies and benchmarking infrastructure investments) and we expect this database to cover approximately 1,500 companies by end of 2017,” the spokesperson added.

Based in Singapore, EDHECinfra was launched last month by the French business school with the aim of establishing infrastructure as a major asset class by creating benchmarks and educating institutional investors.

One of its supporters is the Monetary Authority of Singapore, the country’s central bank. French investment bank Natixis and the non-profit LTIIA are also backing the new entity by endowing two of its research chairs.

The EDHEC-LTIIA Research Chair is the one that will be tasked with developing the infrastructure investment benchmarks. It is the extension of the EDHEC-Meridiam/Campbell Lutyens chair (2013-2015) and includes LTIIA’s support. Its mandate is in effect until 2019.