Ann: Media Release - Leadership team change, page-9

A standard PE approach is not really appropriate for valuing long-duration infrastructure assets such as airports, as it doesn’t capture the term structure of interest rates at all.

A more informative way of looking at it is by projecting out future cashflows in perpetuity, with some reasonable assumptions for air traffic growth and CPI inflation, and by working out what Internal Rate of Return (discount rate) corresponds to the current Enterprise Value.

It turns out to me that AIA’s IRR is actually pretty attractive at present, on a risk-adjusted basis; I encourage everyone who is interested to run that simple calculation by themselves.

On a Discounted Cashflow basis, a selloff by 20%/30% in the SP would correspond to a spike in long-term real (inflation-adjusted) yields by 40-60 basis points, which is not impossible but (in my view) very unlikely to be sustainable.

Overall, I agree that this is a great (and possibly underanalysed) asset to own.