Brookfield Infrastructure Partners L.P.
(BIP-N, BIP.UN-T) US$35.27
Q1/23 in Line; Strong Visibility for 2023 and into 2024
Event
BIP reported Q1/23 FFO/unit of $0.72, in line with the Street/TDSI at $0.72/$0.73.
Impact: SLIGHTLY POSITIVE
Solid Q1/23 Results: FFO/unit increased 12%. Organic growth of 9% was strong, and at the high-end of BIP's target range, as the LP's tariffs continue to benefit from elevated levels of inflation. The results also reflect strong transport volumes, the commissioning of ~$1bln in new capital projects over the TTM, and the uplift associated with BIP's asset rotation program (HomeServe acquisition).
Visible Earnings Growth: BIP captured mid- to high-single-digit inflationary increases on its tariffs during 2022, and considerably exceeded its annual M&A target (~$1.5bln) by deploying $2.9bln to new investments, whereby the LP has good visibility to low-double-digit FFO/unit growth in 2023 (~$3.00). Similarly, inflation remains in the mid-single-digit range across BIP's geographic footprint, and the LP has already modestly exceeded its 2023 capital deployment target less than halfway through the year, which provides increasing visibility to another year of strong growth in 2024.
Liquidity/M&A Pipeline: BIP ended Q1/23 with $2.4bln of corporate liquidity, and has launched its next wave of asset sales, which should generate ~$2bln of proceeds in 2023, a number that is supported by the seven asset sales BIP has secured since interest rates began rising in late-Q1/22, all of which achieved values that were in-line with or above the LP's expectations. Furthermore, the opportunity to use BIPC shares as an acquisition currency (IPL/Triton deals), provides a differentiated source of financial flexibility, in our view. Our sense is that BIP's M&A pipeline remains robust, focused on North America/Europe, as is typical in periods of macro uncertainty, and in the areas of data and utilities, including opportunities to expand its residential decarbonization infrastructure platform. While we could still see some smaller infill transactions close during 2023, larger deals would contribute to 2024/2025 visibility at this point.
TD Investment Conclusion
We believe that BIP is very modestly valued in the context of its high-quality and well-diversified asset portfolio, and given that, by owning BIP, investors effectively have the opportunity to gain exposure to each active vintage of Brookfield's private infrastructure funds, with the benefit of daily liquidity.