Money
Issue No. 13 - October/November 2003
Investing in Infrastructure
by Tony Catt
The leading infrastructure stocks outlined in the table below operate a range of urban toll roads and airports. The common thread amongst these companies is the solid but unspectacular long—term growth dynamics inherent in each entity. Driving these dynamics are the steady progression of new roads, terminals, population growth and urbanisation. For example, as “gridlock” advances in many modern urban centres, motorists are increasingly prepared to pay extra to escape the conjestion and save both time and ultimately money as well.
In each case there is a concentration of specialised executive skills within the management company which affords the opportunity for asset expansion through new greenfields developments both domestically and further afield. Asset diversification also reduces risk, particularly in a geographic sense as regional centres experience differing economic climates.
The attraction of infrastructure stocks in uncertain economic conditions such as we are currently experiencing lies in the strong cashflows generated by these assets. The ‘recession—proof’ nature of these assets and the surety of the cash stream ensures high distribution payouts and is a key attraction to the retail investor. In essence, investment in these types of securities has a stabilising effect on overall portfolio performance.
The companies in this group tend to have a relatively simple and predictable source of revenue but they can be quite differen...
