In December 2015, Standard & Poor’s published Industry Top Trends 2016: Transportation Infrastructure, a report detailing the top trends for transportation infrastructure in 2016. At the top of the list, S&P anticipates earnings growth for the transportation infrastructure companies it tracks to grow by 3 percent to 6 percent, driven by both volume and tariff growth increases. The airports sector is expected to outperform the other transportation sectors such as toll roads.
Transportation infrastructure companies also are expected to make larger-than-average investments in assets. S&P notes:
“Many segments, such as toll roads and airports, are making ‘catch-up’ investments to increase capacity following the fall in investments we saw over the financial crisis and recession of 2008–2011, or because they are experiencing a higher level of demand than they initially projected.”
These investments include adding toll lanes to existing road shoulders and improving runways and expanding terminal capacity as well as investing in high-speed rail.
The sector also is expected to see a resurgence of mergers and acquisitions. S&P reports:
“There have been some M&A opportunities in the market, especially in the airport and toll road markets in Europe and Latin America. In Latin America, we foresee higher inflation than in the other regions, but we do not believe this will affect transportation infrastructure companies’ credit quality, as most of the concession contracts allow costs increases to be passed on.”
Most of the transportation infrastructure companies S&P tracks have stable ratings, and the majority of those on “negative” watch are in Latin America and Western Europe.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
