NYSE:BIP - Post Discussion
Post by
retiredcf on May 02, 2024 8:57am
RBC 2
May 2, 2024
Brookfield Infrastructure
Getting paid to wait for a catalyst
Outperform
NYSE: BIP; USD 27.53; TSX: BIP.UN
Our view: While we acknowledge the lack of a visible catalyst, we continue to believe that investors are getting an attractive total return made up of an above-average distribution yield and above-average annual distribution growth. We think they will be rewarded with eventual unit price appreciation once BIP can deliver a positive catalyst, which could include BIP profitably recycling capital, announcing an acquisition of “core” infrastructure assets that deliver immediate and meaningful accretion with visible upside optionality, and/or a material unit buyback if BIP sees the upside to NAV as exceeding its investment return targets.
Key points:
M&A environment “should be more balanced” in 2024. BIP continues to make headway on its asset monetization program, which included an agreement to sell the fiber business in France for up to $100 million of equity proceeds (net to BIP), with the partnership messaging a roughly 17% achieved IRR. On the acquisition side, BIP is being “very selective” and is targeting 15–20% returns, while also looking to create dry powder if contrarian opportunities materialize.
Financial setup protects against various macro exposures. On the foreign exchange side of things, we note that roughly 80% of BIP’s pre-corporate FFO is either generated in U.S. dollars or is hedged, with its remaining exposure being the real in Brazil. Interest rate wise, more than 90% of BIP’s debt is fixed rate with an average term of seven years. Further, only 4% of BIP’s asset level non-recourse debt is set to mature over the next year, and the partnership has no maturities at the holding company level until 2027.
Results in line with our estimates. In Q1/24, Brookfield Infrastructure’s FFO/unit was $0.78 versus our forecast of $0.79 and consensus of $0.78 (eight estimates ranging from $0.76 to $0.79). As shown in Exhibit 1 on page 3, the segment results were fairly close to our forecast, with the largest variances being Midstream (-$11 million; about $0.01/unit) and Transport (+$11 million; about $0.01/unit).
Moderating our FFO estimates. We reduce our FFO/unit estimates for 2024 and 2025 to $3.21 and $3.48 (from $3.26 and $3.56), respectively, primarily to reflect the Q1/24 results and trends observed during the quarter, including a more conservative forecast for Inter Pipeline (specifically the Heartland Petrochemical Facility) and a slower than previously expected ramp-up from new assets in the Data segment, partially offset by stronger results from multiple assets in the Transport segment as well as the impact of the acquisition of an incremental stake in VLI in Brazil.
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