TD Their target is $46.00. These analysts can't all be wrong. GLTA
April 2, 2024
HIGHLIGHTS OF INVESTOR MEETINGS; 2024 OFF TO A STRONG START
THE TD COWEN INSIGHT
The content/tone of the meetings reinforced our view that 2024 is off to a strong start for BIP. Despite those positive fundamentals, and the prospect of lower long-term interest rates, BIP offers a 5%+ yield and is trading at only 12.2x EV/2024E EBITDA (consensus), which is at the low-end of its 10-year range of 12.5x-16.7x, and which we see as a very attractive entry point.
Event
We hosted BIP for investor meetings in Chicago last Thursday.
Impact: SLIGHTLY POSITIVE
Businesses Performing Well: BIP anticipates that inflation will return to its ~3-4% target range in 2024; however, the business will still be compounding the impact of over two years of mid- to high-single-digit inflation indexation across ~85% of its cash flows. 2024 will also benefit from $2bln of capital deployment in the transport/data segments in late- H2/23. Notably, cargo diversions away from the Red Sea are driving very high levels of container utilization at Triton, which exceed BIP's underwriting assumptions.
Strong Start on Capital Recycling: BIP has generated ~$1bln+ of proceeds YTD, based on: 1) several opportunistic financings to optimize the capital structure at two mature North American pipelines (~$550mm to BIP); and 2) a dividend recapitalization of the NTS pipeline in Brazil (~$500mm to BIP), whereby BIP has already realized a 2.4x multiple on its initial investment, prior to selling its ~30% stake. Some investors may not view these financings as on par with asset dispositions; however, the debt is portable, which creates embedded value for a buyer, and reduces the size of the equity cheque required in a future sale.
Growing Digital Exposure: Following the acquisitions of Data4, Compass, and Cyxtera, BIP has one of the largest global hyperscale data center platforms and much-improved scale in its North American co-location data center platform. BIP's long duration contracts (~10-15 yrs) in its hyperscale platform (~85% of the business) include inflation indexation, but do not provide exposure to current pricing. However, BIP's capacity to in-source land acquisition/zoning/permitting through the Brookfield ecosystem should support a high- single-digit unlevered yield and a mid- to high-teens levered yield on a build-and-hold basis. Assuming that BIP can successfully fund the capital backlog by monetizing fully operating/contracted data centers at ~9-12% IRRs, the all-in IRRs could be 20%+. We expect data to grow to ~25% of BIP's FFO in three to five years vs. ~10% in 2023, which includes data centers, telecom towers, fiber, and distributed antenna systems
Our Investment Thesis
Brookfield Infrastructure Partners L.P.
We believe that BIP offers a compelling combination of yield 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. Approximately 90% of BIP's cash flows are regulated and/or contractual, 70%+ are indexed to local inflation, ~75%-80% are generated in/hedged to U.S. dollars, and 70% have no volume/price sensitivity.