Can you use 'comps' to value infrastructure assets?
Answer
'Comps', also called peer-group valuation, is a relative valuation approach with the basic premise that similar companies should have similar equity value.
Comps can be used as part of the valuation process for private infrastructure assets. Whilst comps will not necessarily provide you with an exact asset price, they can be used as a benchmark to make sure that you are buying or selling within the bounds of where the market is at for specific kind of asset and level of risk.
There are also two important challenges to note regarding building comps for unlisted infrastructure:
Infrastructure companies are far more heterogenous in nature than, say, real estate companies, and thus finding similar companies is rarely ever possible. For example: two airports could be completely different depending on their business models or their geo-economic exposure.
Unlisted infrastructure companies trade very infrequently. So even if there are 'genuine comps' of a particular asset, the last traded valuation could be significantly outdated. As such, a cross-section approach for private infrastructure comps is often not statistically robust enough to produce meaningful results.
As such, comps should be built using risk factors. Our Comps Builder tools offer a better approach for private infrastructure comps whereby instead of endlessly sub-setting the data, we can slice it by common risk factors or characteristics, and then average it.
Things to Consider
In EDHECinfra methodology, other infrastructure asset prices are used to calibrate the models to the market based on an asset's financials and characteristics, but not to directly calculate a price. Thus, some adjustments to the data are usually expected on your end when taking into account the idiosyncrasies of specific asset; our Excel add-in tool can help with this in particular.
To learn more about how to build better comps, you can watch our webinar from March 2023 here.