Infrastructure, infrasturcture, infrastructure
WHEN GERMAN ELECTRICITY utility E.On walked away from buying Scottish Power in November 2005, its 570p per share offer had already been received with disbelief in some quarters – the Germans were clearly mad to think that the company was worth that much. But one year later Spanish utility Iberdrola looks like it has taken E.On’s place and no one is dismissing anything in the utility sector any more. Following a series of astonishing bidding wars over the past year, UK utilities are being bought and sold at multiples that seem to defy logic. Iberdrola, together with a private equity fund, is understood to be offering just over 800p per share for Scottish Power (a company that at the time of the E.On bid many analysts were valuing at little over 500p). No formal bid is yet on the table.
Infrastructure experts would and do argue that equity analysts routinely undervalue utility companies, but the episode is a good example of just how much the infrastructure market has changed in the past year. Infrastructure itself is clearly a very broad asset class, ranging from greenfield, construction project finance-type risk to PPP/PFI long-term committed government cashflow-type risk to utility-style cashflows that are dependent on regulatory settlement.
