TD They have a US$45.00 target. GLTA
Brookfield Infrastructure Partners L.P.
(BIP-N, BIP.UN-T) US$30.63
Expecting Solid Finish to 2023; Units Very Attractively Valued
Event
BIP will report its Q4/23 results on Thursday, February 1 (pre-market).
Impact: NEUTRAL
Q4/23 Results: We/the Street are forecasting FFO/unit of $0.80, which implies a
healthy y/y increase of ~11-12%, as the net contribution from BIP's recent M&A/
capital-recycling activity adds to high-single-digit organic growth. We/the Street
also expect a 6-7% distribution increase to be announced with the Q4/23 results,
consistent with recent practice.
Visible Cash Flows: BIP's underlying cash flows are highly resilient, as ~90%
of FFO is regulated/contractual, ~75-80% of FFO is generated in/hedged to U.S.
dollars, and ~70% of FFO has no volume/price sensitivity. Furthermore, unlike
many of its utility/yieldco peers, ~70% of BIP's cash flows are inflation-indexed,
which provides a natural interest-rate hedge. BIP estimates that a hypothetical
200bps increase in its cost of debt would impact 2024, 2025, and 2026 FFO
by only $25mm, $20mm, and $50mm, respectively, whereas inflation indexation
should increase 2023 FFO by >$100mm, which will continue to compound going
forward.
Strong Investment Backdrop: Returns on new investments should comfortably
exceed BIP's 12-15% target range in this environment. Monetizing assets has
become moderately more challenging; however, BIP achieved its $2bln capital-
recycling objective for 2023, which we attribute largely to the flexibility associated
with having such a large/deep pool of assets to choose from. We also note that the
success of BIP's asset rotation program depends on the relative spread between
the going-in and exit yields; not the absolute level of valuation/returns.
Very Attractive Valuation: BIP is trading at 12.2x EV/2024E EBITDA
(consensus), which is below the low end of the 10-year range of 12.4x-16.7x,
and a valuation that we consider very attractive for a high-quality portfolio of long-
life infrastructure assets. BIP repurchased ~1mm units in Q4/23 and will likely
continue to weigh buybacks relative to new investment opportunities.
TD Investment Conclusion
We believe that BIP offers a compelling combination of yield (~5%) plus high-single-
digit to low-double-digit FFO/unit growth, and note that, by owning BIP, investors
effectively gain exposure to each active vintage of Brookfield's private infrastructure
funds, with the benefit of daily liquidity.