Brookfield Infrastructure Partners LP BIP

RBC

[retiredcf]

Current and upside scenario targets are US$47.00 and US$50.00. GLTA

September 30, 2022
Brookfield Infrastructure 
Investor Day: Fantastic 3D Voyage

Our view: We believe the Investor Day presentation should help quell investors' fears with respect to the impact of a strong U.S. dollar and higher interest rates (i.e., BIP is guiding to 12-15% FFO/unit growth from 2022 to 2023), while also focusing the market's attention on the upside from investments in the Three Ds, being digitalization, decarbonization and deglobalization. We view the recent unit price weakness as a compelling entry point.

Key points:
Three Ds: Digitalization, decarbonization and deglobalization are driving the deployment of capital. BIP dedicated a section of its presentation to three global themes that have, and will, underpin many of its investments. BIP noted that these themes have resulted in increased investment activity over the past two years.

• Digitalization has been a long-standing theme for BIP that has driven numerous data infrastructure investments including the recent European telecom tower acquisition (please click here).

• Decarbonization was highlighted on the supply side (e.g., emitting industries focused on carbon reduction such as Inter Pipeline) and demand side (e.g., consumer-driven preference for lower reliance on fossil fuels such as Enercare).
  •Deglobalization is resulting in investments related to energy independence (e.g., Sabine Pass), the security of supply chains (e.g., Asciano) and the onshoring of critical industries (e.g., Intel partnership).

  FX movements should not materially impact FFO. We believe that the strong U.S. dollar has been a contributing factor to BIP's unit price weakness. Management noted that roughly 82% of its FFO is denominated in, or is hedged to, U.S. dollars over an average of 24 months. Further, we note that based on disclosures at the end of Q2/22, much of the unhedged FFO exposure comes from Brazil, where FX rates versus the U.S. dollar have been fairly steady over the past few months.

  Strong growth projected into 2023. On top of projecting 11% FFO/unit growth from 2021 to 2022, BIP is targeting 12-15% FFO/unit growth off of a forecast base in 2022 of $2.70 (we are at $2.69), resulting in 2023 FFO/unit of $3.00+ (we are at $3.09). BIP highlighted that heightened investment activity (i.e., $2.8 billion of secured new investment, which is roughly double its annual target) and above average inflation have contributed to the strong growth outlook.

  Elevated outlook for capital recycling activity. Management noted that it sees the potential to exceed its $1.5 billion annual capital deployment target, while also noting that it expects heightened asset monetizations to help fund elevated investment activity.