Brookfield Infrastructure Partners LP BIP.PR.B

TD

[retiredcf]

Have a $49.00 target. GLTA

Q3/24 PREVIEW; EXPECTING A RAMP UP IN ASSET SALES AND M&A ACTIVITY IN H2/24

THE TD COWEN INSIGHT

Our FFO estimates have come down to reflect the impact of a higher market cap on the base mgmt fee paid to BAM (a high-quality problem). BIP's unit price has moved higher in response to the prospect of declining interest rates, but the units still yield ~5% and trade at only 12.7x EV/2025E consensus EBITDA. We see a reacceleration of asset monetization/ M&A activity as another potential catalyst.

Event

BIP will report its Q3/24 results on Wednesday, November 6 (pre-market).

Impact: NEUTRAL

Estimates/Target Price: We have revised our forecast to reflect higher unit/stock prices for BIP/BIPC, which increase the base management fee in Q3/24 and beyond. We have also modified our Q3/24 forecast to factor in a 5-6% y/y decline in the Brazilian real, among other adjustments. Our FFO/unit estimates decline by 6% in Q3/24 and 1-2%  in 2024-2026. Our target price is unchanged based on a 1x increase in the average multiple used to value the data segment to 20x (vs. 19x), which we believe is still quite conservative. The weighted average EV/EBITDA multiple underpinning our target price is 14.6x (TTM ended June/2026E) vs. 14.4x previously.

Capital Recycling Set to Ramp Up: BIP should comfortably meet/exceed its $2bln capital recycling target for 2024, having already raised ~$1.8bln as at its Investor Day. The LP anticipates selling $5bln-$6bln of assets over the next 2 years, continuing its track record of selling mature businesses at strong valuations and redeploying the proceeds into assets with more attractive valuations/growth profiles. We believe that BIP's upcoming capital recycling could include selling partial stakes in some of its stabilized data center assets, which has the potential to reveal significant embedded gains.

Resumption of Large-Scale M&A: BIP deployed ~$500mm to a series of tuck-in acquisitions during H1/24, which while small, tend to offer very high risk-adjusted returns. Larger-scale deal activity re-accelerated over the summer and BIP's M&A pipeline is stronger than it has been in 18-24 months. We expect BIP's areas of focus to include 1) AI infrastructure; 2) industrial carveouts; and 3) electric/gas utilities.

Compelling Valuation: BIP yields ~5% and trades at 12.7x EV/2025E consensus EBITDA, which we see as a compelling valuation for a diversified portfolio of high-quality infrastructure assets. Notably, ~50% of BIP's FFO is directly exposed to digitalization/ decarbonization and ~60% is directly/indirectly exposed to digitalization. BIP's 10-year trading range is 12.5x-16.7x EV/FTM EBITDA.