Similar to RBC. GLTA
Raymond James analyst Frederic Bastien reiterated a “strong buy” rating on Brookfield Infrastructure Partners L.P. after reviewing the company’s third quarter results. But he did lower his price target, to US$40 from US$45, due to the impact of higher interest rates.
Funds from operations were 73 cents a unit, a penny shy of consensus estimates. “Organic growth was in the high single digits again, owing to elevated inflation across the Utilities and Transport segments and the commissioning of new capital projects over the past year, while the payout ratio (67%) headed lower still. Liquidity now stands at $2.1 bln proforma the Compass deal, providing BIP with significant firepower to capitalize on today’s buyers’ market,” Mr. Bastien commented.
The Raymond James analyst saw a lot of things to like in the results. “First, embedded inflationary escalators and secured capex offer visibility into healthy organic growth over extended periods of time. Second, a healthy capital deployment run has padded the next years with built-in growth, yielding management the flexibility to pace investment activity in accordance with capital recycling successes. Third, 90% of BIP’s debt is locked with average maturity of seven years, providing certainty on borrowing costs well into the future. Lastly, management is backing its strong conviction in the value of the business with share buybacks,” he said.
“With the higher interest rates pushing up discount rates for valuation, we are lowering our target price to funds from operations multiple from 13.5x to 12.5x, BIP’s 5-year average. We view this metric as reasonable even in a risk-off environment, given Brookfield Infrastructure’s differentiated full-cycle investment strategy, scale advantages, and steadily growing cash flows,” he concluded.