This is a USD target. GLTA
PARTNERS L.P.
Investor Day Highlights Potential Despite Tough Environment
Our Conclusion
The Investor Day presentation causes us to reiterate our view that the units
are a core infrastructure holding, despite headwinds created by the
macroeconomic environment. Very strong organic growth, in part from a
record capital backlog, and a buyers’ market for new investments support
this outlook. Higher expected IRRs from new investments can partly mitigate
the risk in capital recycling given the economic environment. We reiterate our Outperformer rating and are maintaining our DCF-based price target at $46.
Key Points
Visible Growth Outlook: We take comfort in management indicating a
F2023 FFO/u of $2.95 - $3.00/share, mostly in line with our 2023 estimate of
$2.97/share and consensus of $3.01/share. Annualized run-rate FFO/u
represents 13% growth over 2022 and supports the 12%+ FFO/u CAGR
expected for the one- to three-year outlook (vs. our 13.0%). The growth
outlook supports continued distribution increases in the 5%-9% range,
including the 6% increase in 2023.
More Balance In Growth Outlook: A record capital backlog and inflation
indexation for existing businesses are helping to support the growth outlook.
This is also aided by “platform” investments made in recent years. These
tend to have lower going-in FFO yields but higher growth rates. The result is
organic growth at the upper end of the 6% to 9% long-term range but also
more balance in the growth profile.
A Buyers’ Market: BIP has well exceeded its capital deployment target for
the year, with ~$2.6B of investments. We don’t expect BIP to stay idle as it
views the current market as a buyers’ market, a view that is supported by
recent transaction valuations in the energy infrastructure sector. In this
context, both the near-term and medium-term growth outlook are
encouraging. There has been a notable uptick in Data investments recently, advancing the Digitalization theme and creating one of the largest global hyperscale data-centre platforms. BIP has invested $0.9B (net) in data centres so far this year. Recent platform investments also have lower risk, with 100% inflation indexation and ~80% of the capital backlog contracted at acquisition.
Higher Capital Recycling Run Rate: Capital recycling has continued to
progress in the face of tightening market conditions with $1.9B of asset sales
compared to the $2B 2023 divestiture target. The 2024 capital recycling
target is also $2B, equal to the new annual run-rate level expected. BIP’s
diverse base of quality assets provide it with capital recycling options, but the onus is on execution in order to take advantage of the buyers market.