We have demonstrated over the last few newsletters how to employ infraMetrics® data to price up already completed deals. This month we’re looking to try something different: price up a possible transaction. This deal hasn’t happened, and we’re not sure if it will, but this is a demonstration of the value of the data available in the infraMetrics® platform.
In July, we noted a potential transaction involving The Infrastructure Fund, managed by Macquarie, which intends to sell its stake in Perth Airport. Infrastructure Investor reports that The Infrastructure Fund is facing requests for more than 50% of its fund. As a result, we can conclude that Macquarie needs to dispose of its 7.19% share. This decision aligns with the airport’s rebound in passenger volumes, reflecting a return to levels before the pandemic. Additionally, the Australian Retirement Trust (ART), holding a 1.95% stake, is also evaluating the possibility of selling its stake. While the exact pricing details have not been revealed, the transaction is in its preliminary stages, and the financial closure is yet to be achieved.
Perth Airport serves as a hub for international, domestic, and general aviation operations, making it Australia’s fourth biggest airport based on passenger volumes. It operates under an approximate lifecycle of 100 years, which traces back to its acquisition and the subsequent lease agreements granted by the Commonwealth Government in 1997. These agreements include a 50-year lease term and an additional 49-year option, collectively spanning a century.
Analyzing the airport’s recent performance, we have observed a modest 2% decline in total passengers during FY 2023 when compared to FY 2019, as stated in the latest corporate release. This indicates a relatively quick rebound since the pandemic-related disruptions. While there was a slight decline compared to the pre-pandemic levels, the fact that the decrease is only 2% suggests a relatively strong recovery in passenger numbers at Perth Airport. Moreover, this resurgence in passenger numbers is consistent with a significant 25% upswing in revenue growth during FY 2022 when compared to FY 2021, as shown in Table 1.
Confirming this positive trend, the June 2023 report from the International Air Transport Association (IATA) highlights that Australia’s Revenue Passenger Kilometers (RPKs) have surpassed their pre-COVID benchmark by 3.9%.
Table 1: Key Metrics for Perth Airport
|Perth Airport Sales||c. AUD375M||c. AUD355M||AUD283.5M|
|EBITDA||c. AUD249.9M||c. AUD188.1M||AUD133.7M|
|Total Assets||c. AUD3,614M||c. AUD3,693M||AUD3,403M|
Table 2 shows a series of Comps built using the infraMetrics® platform “Comps Builder” to create a range of valuation ratios for an airport like Perth. For example, for an airport of similar size, the price-to-sales ratio is 3.9x and EV/EBITDA is 13.9x on average. But we see that a highly profitable airport like Perth trades at 8 times sales and almost 24 times EBITDA. Considering all the factors that drive the valuation of an asset like Perth Airport, all of which our research has shown to have a significant and independent impact on asset value, we can build fair Comps for Perth Airport using the average of the ratio for each dimension.
We find that at today’s fair market price, Perth Airport should trade at 6 times sales and 21 times Ebitda i.e., an approximate equity value of AUD2.3bn to AUD2.9bn, or a sale of between AUD170m to AUD200m for The Infrastructure Fund’s 7.19% stake.
Table 2: Price/Sales and EV/EBITDA Valuation Ranges (source: infraMetrics®)
|Equivalent quintile||Avg Price/Sales||Avg EV/EBITDA|
|by Size (TA)||3.9x||13.9x|
|by Profitability (RoA)||8x||23.7x|
|by Investment (Capex/TA)||7x||45x|
|by Remaining Life||6.3x||18.1x|
|by Country Risk||3.8x||12.4x|
|Average ratios (Comps)*||6x||21.2x|
|Implied Equity Valuation||AUD2,363m||AUD2,897m|
|Expected Price (for 7.19% stake)||AUD70m||AUD208m|