The Q3 2021 release of the EDHECinfra indices incorporates the views and asset-level revenue forecasts of our team of financial analysts. This report updates the Q2 2021 report and is presented following the TICCS® taxonomy of infrastructure companies. Each quarter, the team reviews the revenue forecasts of 650 companies that currently live in the EDHECinfra universe, based on the latest reports, historical data, sector knowledge and contributed data.
by Jack Lee and the team
Overview: further cash flow projection downgrades in the wake of the continued impact of Covid-19
Despite progress with the development and provision of Covid-19 vaccines, there is still little clarity on the evolution of lockdown restrictions in most of the 25 countries in the EDHECinfra universe. On this basis, the expected impact on the future revenues of infrastructure companies remains depressed for the next 12-36 months.
That said, the majority of the forecasts we made in Q2 2021 remain applicable, with the exception of those for sectors highlighted below.
IC6010 Airport Companies
In this quarter, we expect to make a further decrease in our revenue projections as compared to the previous quarter. Industry-wide revenue passenger-kilometres (RPKs) were down 65.4% on pre-crisis levels (April 2019) as international travels still remain weak due to the tight travel restrictions in place (IATA, 2021a). That said, air travel demand improved in April 2021 when compared with March 2021, supported by a rebound in domestic travel. The recovery of domestic and international markets is dependent on future restrictions, vaccination rates and the risk-aversion of passengers (IATA, 2021b). We expect only a gradual recovery in travel demand in late 2021 with numbers not returning to pre-Covid level until 2023.
IC6030 Port Companies
The World Trade Organisation (WTO) highlights the tremendous rebound from Q2 last year in port activities – global trade volume has increased 17% between 2020Q2 to 2021Q1. As the world recovers and transitions towards normality. The WTO projects trade volume to continue to rise and converge towards the growth trend as seen in pre-Covid era (WTO, 2021).
In the WTO projections, there are 3 scenarios depicted: Upside, downside and baseline scenario. Our projections are consistent with the baseline scenario because, notwithstanding the Delta variant, vaccination rates have grown exponentially since 2020, significantly reducing the risk of further economic disruption caused by virus containment measures. Therefore, based on the baseline scenario, we projected a 3.64% for 2021 and 4.39% for 2022.
IC6050 Road Companies
In Europe and US, we have not significantly revised the revenue forecasts remain from Q2 2021. However, in Malaysia, revenue is expected to decline even further, by 20% in 2021 and 10% in 2022 when compared with Q2 2021. This reduction is due to the Movement Control Order and total lockdown imposed during 2021, which significantly restricts mobility. Although traffic has been slowly recovering since late June in accordance with the National Recovery Plan, the overall traffic remained low during the period.
In Australia, due to the surge in the number of cases from July onwards, lockdowns have been imposed in many cities which adversely affected the traffic, especially in Victoria. As a result, the revenue is expected to decrease by a further 35% in Victoria and 30% in the rest of the country in 2021. A 10% decline is also expected in Victoria in 2022.
IC80 Network Utilities
In Europe, the Covid-19 pandemic and various restrictions and lockdown measures have generally dampened the revenue growth of utility companies. According to IEA, electricity demand fell by around 20% in Q2 2020 compared with Q2 2019. Throughout the rest of 2020, most countries experienced a mixture of easing and tightening of restrictions and electricity demand stayed at pre-pandemic levels. In the first half of 2021, electricity demand in Europe has almost recovered to pre-pandemic levels (Ember 2021). We expect that with the rise in inoculation numbers, most of Europe will continue the relaxation of measures, yet governments will be quick to impose restrictions again if the coronavirus situation does worsen. For utilities in UK, Spain, and Italy, we project revenue in FY2022 to be a proportion of revenues from a pre-pandemic year (March 2019/2020) and revenues from a covid-impacted year (March 2020/2021).
Our Q3 2021 revenue projections for other sectors are unchanged from our Q2 2021 assessment.
As before, the most impacted segments are merchant (BR-20) and regulated (BR-30) companies. In the absence of long-term revenue contracts, these investments are susceptible to the impact of external events. By contrast, contracted business models (BR-10), have been far more robust in the face of the impact of Covid-19 on cash flows.
As of this quarter, companies in all geo-economic segments (TICCS Pillar 4) are included in our revision of the revenue forecast due to Covid-19, as the pandemic has spread.
The following table lists those industrial sectors that we consider to be experiencing the most material impact:
|TICCS® industrial superclasses most affected by Covid|
|IC10||Power Generation x-Renewables|
|IC40||Energy and Water Resources|
- Ember (2021). European Electricity Review – 6-month update H1 2021. https://ember-climate.org/wp-content/uploads/2021/07/European-Electricity-Review-H1-2021.pdf
- IATA (2021a). Air Passenger Market Analysis June 2021. https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-monthly-analysis—june-2021/
- IATA (2021b). An almost full recovery of air travel in prospect. https://www.iata.org/en/iata-repository/publications/economic-reports/an-almost-full-recovery-of-air-travel-in-prospect/
- IEA (2021). Electricity Market Report – July 2021. https://iea.blob.core.windows.net/assets/01e1e998-8611-45d7-acab-5564bc22575a/ElectricityMarketReportJuly2021.pdf
- WTO (2021). World trade primed for strong but uneven recovery after COVID-19 pandemic shock. https://www.wto.org/english/news_e/pres21_e/pr876_e.htm