Target Raised Brookfield Infrastructure Partners LP’s “accretive, large-scale” US$13.3-billion acquisition of Triton International Ltd. (TRTN-N) adds an established transport platform and bolsters near-term growth, according to iA Capital Markets analyst Naji Baydoun.
“TRTN is the world’s largest owner and lessor of intermodal shipping containers, providing transportation logistics services to clients globally under long-term leases which support highly contracted and stable cash flows (6-7-year average remaining lease duration; 60 per cent of containers on life-cycle leases; multi-decade client relationships),” he said. “TRTN also boasts a highly utilized asset base with a diversified and high-quality shipping clientele, supporting its business performance despite softening near-term market fundamentals (e.g., lower trade volumes and normalizing freight rates). TRTN’s scale, market leadership position, investment-grade financing structure, and highly contracted portfolio are some of the key attributes that make it an attractive investment for BIP. The business has a long and established track record of sustained mid to high single-digit fleet and asset base growth as well as strong profitability/returns.”
TSX-listed units of Brookfield Infrastructure slipped 0.3 per cent on Wednesday following the announcement of the deal, which will see it invest almost $1-billion in equity into the deal through Brookfield Infrastructure Corp. class A exchangeable shares.
“The issuance of BIPC highlights how the shares enhance BIP’s access to capital, particularly as they traded at a wide premium to the BIP units,” said Mr. Baydoun. “We calculate forward transaction valuation multiples of 9 times EV/EBITDA and 8-10 times P/AFFO, which compare favourably to (1) BIP’s own trading multiples (13 times EV/EBITDA and 12-13 times P/AFFO), (2) valuation multiples ascribed to BIP’s Transport operations (12-14 times EBITDA), and (3) precedent transactions for similar assets (12-20 times EBITDA). We estimate that BIP’s investment in TRTN could generate $0.05-0.10 of AFFO/share accretion, or 2-3-per-cent AFFO/share accretion compared to our estimates.”
Maintaining his “strong buy” recommendation for Brookfield Infrastructure, Mr. Baydoun bumped his target to US$47 from US$46. The average on the Street is US$42.31.
“We view BIP as a unique and diversified way for investors to play the broad long-term infrastructure investment theme, with (1) access to a global, large- scale infrastructure investment platform (ownership interests in more than $70-billion of assets), (2) defensive cash flows (approximately 90 per cent of FFO regulated/contracted), (3) visible and sustainable organic cash flow growth (6-9 per cent per year, CAGR [compound annual growth rate] 2022-27), (4) potential upside from accretive M&A, and (5) attractive income characteristics (4.5-per-cent yield, 60-70-per-cent long-term FFO payout, and a 5-9 per cent per year dividend growth target). We are increasing our price target to reflect the incremental value from the Triton investment.”