Brookfield Infrastructure Partners LP T.BIP.UN

RBC 2

[retiredcf]

Their upside scenario target is US$45.00. GLTA

February 2, 2024

Brookfield Infrastructure
Setting up to demonstrate the power of recycling

Our view: With Q4/23 results and a 6% distribution increase that were largely in line with our expectations, we believe the market's near-term focus will be on the execution of BIP's $2 billion capital recycling program in 2024, recognizing the partnership's progress thus far and tailwinds in the form of lower long-term interest rates. As BIP is able to demonstrate its ability to raise capital from attractively-valued asset monetizations and asset level financings and deploy that capital into new investments at higher risk-adjusted returns, we believe investors will be rewarded with unit price appreciation paired with continued annual distribution growth.

Key points:

Capital recycling is off to a good start. BIP recently completed several *Implied Total Returns asset-level (and portable) financings at two North American pipeline operations, generating $550 million for BIP, with a further potential benefit from a more attractive asset sale valuation given the debt that is already in place (i.e., a buyer requires less cash to acquire the asset). With the recent downward trend in interest rate expectations likely having a positive impact on asset valuations (via more favourable costs of capital), we believe BIP is set up well to achieve its $2 billion capital recycling target for this year.

Investing further in the digitization theme. Following recent investments in Data4, Compass and Cyxtera, in Q1/24, BIP agreed to acquire ATC India in a transaction that was valued at $2 billion, which the partnership noted resulted in a multiple of below 6x 2024E EBITDA. BIP expects its net investment to be roughly $150 million, with the transaction closing in H2/24. The business' portfolio of 78,000 telecom sites in India adds to the 175,000 sites in locations held by its existing business, forming one of the largest tower platforms globally.

Distributions increased by 6%; we anticipate payout ratios in 2024 and 2025 to be at the low-end of the long-term 60-70% target range. BIP announced an increase in its distribution to a new annualized rate of $1.62/ unit (up from $1.53/unit), which compares to our estimate for an increase in the distribution to $1.64/unit and consensus of an increase to $1.63/unit (eight estimates; range of $1.62-1.64).

Q4/23 FFO/unit was in line with our estimate and consensus; modest change to our 2024 estimate. In Q4/23, Brookfield Infrastructure's FFO/ unit was $0.79 versus our forecast of $0.80 and consensus of $0.80 (seven estimates; range of $0.79-0.80). We have revised our 2024 FFO/unit estimate to $3.26 (down from $3.30) to primarily reflect the takeaways from the Q4/23 results and disclosures (including higher-than-forecast corporate costs), while maintaining our $3.56/unit estimate for 2025, supported in part by forecast accretion from the ATC India investment.