Brookfield Infrastructure Partners LP BIP

TD

[retiredcf]

A very quiet BB. TD's current target is US$49.00. GLTA

Brookfield Infrastructure Partners L.P.

(BIP-N, BIP.UN-T) US$35.70

Visible 2023 Earnings Growth, Supportive Thematic Tailwinds

Event

Yesterday, BIP hosted an Investor Day.

Impact: POSITIVE

• Targeting 2023 FFO/Unit of $3.00+: Elevated inflation is a tailwind, as 70-75% of EBITDA is inflation-linked, while 10-15% has pass-through mechanisms under fee-for-service models. BIP's H1/22 results captured 5-6% inflation vs. current inflation of 7-8% across its geographies, which should position the LP to exceed its 6-9% organic growth target in 2023, and possibly also in 2024. Importantly, BIP's cost structure is largely fixed, whereby the compounding of inflation-driven revenue increases should produce strong operating leverage. BIP has also committed/deployed $2.8bln to M&A year-to-date (well above its $1.5bln target), largely funded with asset sales at attractive valuations, and while some of the new investments have lower-than-normal going-in FFO yields, the assets sold had limited inflation indexation/minimal capex backlogs, whereas the new investments have very high inflation indexation and significant capex backlogs. And finally, BIP is well-positioned to weather higher interest rates/FX volatility, with ~90% of its debt long-term/fixed-rate (excluding Brazil) and 80%+ of its FFO hedged.

• "Three Ds" are Thematic Tailwinds: BIP expects digitalization, decarbonization, and deglobalization to drive significant multi-year investment opportunities. BIP's existing telecom assets will soon be augmented by a marquis portfolio of ~36,000 German telecom towers and a significant capex backlog. BIP's midstream portfolio is well-positioned to participate in the "supply side" of decarbonization over time, while the residential energy infrastructure platform offers immediate leverage to the "demand side", with a rental model that is ideally suited to help consumers defray the high upfront cost of new in-home technology (heat pumps/solar panels). Digitalization and decarbonization offer near-term growth, with decarbonization likely to provide the larger opportunity-set in the long term, in our view. Deglobalization is a more nascent trend, but we believe that the Intel partnership positions BIP as a flexible counterparty with the ability to bring the full "Brookfield ecosystem" to bear (renewable power/real estate/residential development).

  TD Investment Conclusion

  We believe that BIP's high-quality and well-diversified portfolio of long-life infrastructure assets provides an attractive combination of offense and defense.