Australian energy and utilities sector to strengthen credit profiles

Investors seeking refuge from volatile global markets can find solace in the Australian Energy and Utilities Sector, without giving up yield. The fundamental credit story is underpinned by monopolistic style businesses, with compelling demand driven growth outlooks, and strong and predictable cash flows generated within a constructive regulatory environment.

Issuers are actively working to strengthen their credit profiles to facilitate increased capex requirements whilst adapting to the broader challenges of carbon emission reforms. Complex ownership structures and high balance sheet gearing are being progressively unwound.

We continue to favour the vertically integrated operators and higher rated names with strong parentage such as Citipower, Powercor, ETSA, SP Ausnet and SPI Australia Assets. Relative value can also be attained further down the curve in transmission and distribution, albeit this generally involves lesser secondary market liquidity due to residual monoline involvement.

Our inaugural sector handbook has been written as a reference guide for investors looking to come up to speed on drivers behind the domestic market as well as complexities and nuances behind individual names.