Interested In Utilities? Take A Look At Infratil Limited (NZSE:IFT)

Infratil Limited (NZSE:IFT), a NZ$1.91b small-cap, is a utility company operating in an industry which has continued to cope with the rising costs and complexities of maintaining legacy systems, while less traditional challenges are emerging. Recent trends utility companies are facing include rising cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, an extremely robust growth of 32.3% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the NZ stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the utilities sector right now. Today, I will analyse the industry outlook, as well as evaluate whether Infratil is lagging or leading its competitors in the industry.

View our latest analysis for Infratil

What’s the catalyst for Infratil's sector growth?

Going forward, utility companies face the threat of new entrants and disruptive technologies, growth in renewable generation, and aging assets, just to name a few. In the past year, the industry delivered negative growth of -6.2%, underperforming the NZ market growth of 2.2%. Infratil is neither a lagger nor a leader, and has been growing in-line with its industry peers at around -6.2% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 37.9% growth next year. This growth may make Infratil a more expensive stock relative to its peers.

Is Infratil and the sector relatively cheap?

Electric utility companies are typically trading at a PE of 36.7x, above the broader NZ stock market PE of 16.45x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 4.1% compared to the market’s 11.1%, which may be indicative of past headwinds. On the stock-level, Infratil is trading at a higher PE ratio of 43.22x, making it more expensive than the average utilities stock. In terms of returns, Infratil generated 4.0% in the past year, in-line with its industry average.

Next Steps:

Infratil's future growth prospect aligns with that of the broader market, however its relative value seems to be above the rest of the industry. This could indicate the price is reflective of factors other than growth. If Infratil has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other utilities companies. If you're looking for growth, it seems other industry peers are also delivering the same rate. However, before you make a decision on the stock, I suggest you look at Infratil's fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has IFT's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Infratil? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.