Also have a US$40.00 target. GLTA
PARTNERS L.P.
Q3/23 Results: In-line Quarter And Maintaining Discipline
Our Conclusion
Operational performance remains strong, with FFO growing 7% Y/Y despite
a gap in timing between asset divestitures and acquisitions. A buyer’s market
for assets is also beneficial to BIP over the long term, leading to increased
return expectations. Combined with a historically low valuation, we see the
recent price weakness as an excellent opportunity for long-term investors to
acquire shares. This may be supported by more share repurchase activity.
We reiterate our Outperformer rating and maintain our discounted cash flow
(DCF)-based price target of $40.
Key Points
Capital Allocation Favoring Repurchases: On the capital allocation front, it
is a buyer’s market for assets, which we see as beneficial to BIP over the
long term. We expected BIP to pace new investments with recycling activity,
reducing the risk to investors of funding pressure timing risk to FFO. BIP is
being more aggressive on repurchases, having bought back 1MM units since
quarter end. Once additional capital recycling is completed, BIP will evaluate
the merits of more repurchases relative to new investments.
Management reiterated the 5%-9% distribution growth outlook and has over
$2B in corporate liquidity, including the impact of acquisitions that closed
after quarter-end. The market backdrop has also created a strong
environment for capital deployment, with returns on new investments
expected to exceed the 12%-15% target, to the benefit of long-term
investors.
Cyxtera Agreement: BIP announced a complicated transaction to buy
seven existing US Data Center properties from Cyxtera, and associated real
estate, for $1.3B, which will then be combined with existing assets. We see
this agreement as an opportunity to buy for value and as a transaction to
reunite land leases with Data Centers and combine with existing assets to
create synergies in sales and reduce overhead costs. The transaction is
expected to close in Q1/24, subject to regulatory approvals.
Results In Line: Q3/23 FFO/unit of $0.73 was in line with our estimate of
$0.73 and consensus of $0.75, representing 7% Y/Y growth. The growth vs.
last year (both in aggregate and per unit) is a positive in light of the gap in
selling assets in Q2 and $1.6B of investments closing in Q4, and reflects $1B
of projects placed into service over the last 12 months.
Segment Results: We saw strong performance in the Utilities segment,
delivering $229MM of FFO compared to our estimate of $202MM (+13%),
while the Transport segment slightly beat with reported FFO of $205MM
compared to our estimate of $196MM. Midstream was a miss, with reported
FFO of $163MM compared to our estimate of $205MM. Data beat, with
reported FFO of $66MM vs. our $54MM estimate, and Corporate misse at
($103MM) vs. our ($92MM) estimate.