Our view: We favourably view BIP’s delivery of its $2 billion asset monetization target for 2024, with the Mexican gas transmission sale not only getting BIP to the finish line but also offering a proof point that right-sizing an asset’s capital structure can be effective in accelerating the generation of capital-recycling proceeds without impacting the success of an ultimate sale. Beyond 2024, we view today’s M&A market as being conducive to BIP accelerating its investment activity (including in large platforms that require capital to grow) and continuing its good capital- recycling momentum via its cash-generative, mature assets.
Key points:
Asset monetization: 2024 complete...Following its Brookfield Listed Affiliates Day when BIP was 90% through its $2 billion asset monetization target for 2024, BIP delivered further progress with an agreement to sell its Mexican regulated natural gas transmission business (Los Ramones), which resulted in a 22% IRR and a 2.2x multiple of capital to the partnership. With the $125 million net to BIP from this sale (which is incremental to the debt refinancing on the asset roughly a year ago) and the sale of several financial assets during Q3/24, BIP has now achieved its target for the year.
...with good momentum to do more in the next two years. Beyond 2024, BIP reiterated that it expects to generate $5–6 billion of proceeds from capital-recycling initiatives in the next two years, with these asset sales potentially generating returns “well in excess” of its targets.
Investment activity will “accelerate”, with the U.S. remaining one of the most attractive markets. BIP continues to hold a record backlog of $8 billion (which excludes a further $4 billion of “shadow backlog”) that is centered around decarbonization and digitalization investment themes, with tailwinds associated with AI and the related power demand (note that roughly 60% of BIP’s FFO is exposed to digitization tailwinds, spanning its midstream, utilities, data centers, towers, and fiber assets).
Q3/24 results in line with our estimate and consensus. BIP reported Q3/24 FFO/unit of $0.76, versus our forecast of $0.75 and consensus of $0.77 (eight estimates; range of $0.75–0.81). Most segments were largely in line, with lower-than-expected corporate costs being mostly offset by weaker- than-expected Midstream FFO.