Brookfield Infrastructure Partners L.P.
(BIP-N, BIP.UN-T) US$36.04
Q3/22 FFO/Unit a Slight Beat; Visible 2023 Earnings Growth Event
BIP reported Q3/22 FFO/unit of $0.68, a slight beat vs. the consensus estimate of $0.67, but in line with our forecast of $0.68.
Impact: SLIGHTLY POSITIVE
Strong Q3/22 Results: FFO/unit increased 15% y/y. Organic growth was a robust 10%, reflecting the benefit of ~6-7% inflation and the commissioning of ~$1.2bln of capital projects. Deployment of ~$2bln to M&A over the TTM also contributed.
Visible 2023 Earnings Growth: BIP is uniquely positioned to benefit from elevated inflation, which should continue into 2023, because 70-75% of EBITDA is inflation-linked, while 10-15% has pass-through mechanisms under fee-for- service models, such that periods of high inflation should drive margin expansion. BIP also has a near-record capex backlog, which provides a relatively low-risk and highly visible source of near- to medium-term growth. Furthermore, having invested/committed $2.8bln to new investments year-to-date, BIP has already largely achieved its M&A deployment targets for both 2022 and 2023 ($1.5bln/ year). 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 denominated in/hedged to the U.S. dollar. BIP has previously guided to 2023 FFO/unit of $3.00+, which implies low-double-digit growth.
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Value Investing Opportunities: Infrastructure valuations tend to be very resilient, but periods of market dislocation have historically enabled BIP to make deep- value acquisitions, e.g., BBI (2010) and NTS (2016). Such opportunities generally take several quarters to emerge, and, with strong visibility already in place for 2023, we see BIP as well-positioned to be patient.
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Healthy Liquidity: BIP has $2.3bln of corporate liquidity, which should increase to ~$3bln following the completion of secured asset sales. The LP also has several asset sales processes underway that should generate a further $1.5bln. Three of the four secured asset sales are scheduled to close by year-end, and the businesses currently up for sale generally come with debt that is portable, which is a distinct advantage against this type of macro backdrop.
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.