Distinctive thinking
Inspired by project finance, Pier Review approaches equity analysis differently
This note is part of the Pier Review reference material.
The purpose of Pier Review is to bring to bear, on the analysis of well known quoted companies, the outlook common among specialists in the project finance used to finance large infrastructure assets.
The way that professionals think about investment in infrastructure is very different from the way most people think about whether to sink their savings into the latest fashionable tech company, such as Apple, Amazon or Tesla.
They freely share their assumptions and reasoning with those they are negotiating with
They make no use of multiples as a short cut to doing the analysis properly.
The same way of thinking applies, and has done for even longer than infrastructure, in mining and oil & gas.
The approach of specialists in these fields differs, too, from that of the accountants that draw up company accounts
They focus on cash flows and have almost no interest in measures of profit
They present their forecasts of cash flow in a simpler form that is dramatically easier to understand.
And it departs in some important ways from what is taught in text books and business schools.
Their investments have a finite life over which to return and reward the capital invested
The desired rate of return is established differently
They don’t take a widely taught and unreliable short cut to calculating tax
The order in which analysis is performed is reversed.
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