Brookfield Infrastructure
Highlights from the RBC Global Energy, Power and Infrastructure Conference
NYSE: BIP | USD 36.56 | Outperform | Price Target USD 47.00
Sentiment: Neutral
Our view
We hosted a breakout session with David Krant (CFO) and Rene Lubianski (Managing Partner). We believe that BIP remains well- positioned to execute on its growth objectives (both organic and acquisition-driven), as well as its targeted asset monetization program as part of BIP's capital recycling strategy. Brookfield Infrastructure's units are rated Outperform.
Three highlights from our session
Well-positioned to achieve its growth targets. BIP continues to point to inflation indexation, volume upside from GDP growth and reinvesting free cash flow into its organic capital backlog as the continued drivers behind its 6-9% annual FFO/unit growth target. Further, BIP's opportunistic acquisition strategy has the potential to further enhance cash flow growth, similar to what has already played out in 2023 (e.g., Data4 and Triton acquisition announcements). Geographically, the partnership noted it is seeing more attractive acquisition opportunities in OECD countries.
Capital recycling remains a key part of the strategy, and we sensed that management is even more confident in its target despite current capital markets conditions. Management highlighted its longstanding asset monetization program, which has generally focused on selling mature, de-risked assets and deploying the proceeds into new investments with higher expected returns. Further, BIP's diverse asset portfolio should provide the flexibility to pivot and sell different businesses depending on market conditions. As such, despite capital markets volatility, management appears confident in its ability to achieve or exceed its roughly $2 billion target for asset monetizations this year.
Ability to deliver an attractive total return profile. On top of the units' roughly 4% distribution yield, BIP targets 5-9% annual distribution growth underpinned by growth in the existing businesses (i.e., excluding acquisitions), and based on an overall 60-70% FFO payout ratio range. In addition to growth in the base business, we expect BIP to execute accretive acquisitions that should allow the partnership to grow distributions near, or above, the high-end of the 5-9% range.