Brookfield Infrastructure Partners LP BIP

RBC

[retiredcf]

Current and upside scenario targets are US$45.00 and US$50.00. GLTA

August 4, 2023

Brookfield Infrastructure
Ability to drive value in all parts of the cycle

Our view: With the quarterly results coming in close to our forecast and consensus, we believe the market is focusing on the choppy M&A environment, which creates both opportunities (i.e., buying for value) and challenges (i.e., capital recycling/asset monetization strategy). That said, BIP has historically been most successful in times of market volatility, so we see greater potential for upside versus downside in the units. With therefore view the unit price weakness as an attractive entry point for long- term-focused investors.

Key points:

Multiple avenues for growth. We believe the quarterly results and related disclosures provided examples of how BIP can deliver cash flow growth regardless of the macroeconomic environment. Specifically, the quarterly disclosures demonstrated inflation-linked growth, growth from organic capital deployment, and acquisition-driven growth.

Spotlight on the Data platform with more to come at the September investor day. BIP noted that it expects to initially earn single-digit going- in yields for its recent data center investments but anticipates significant growth based on the “highly visible” and “large-scale” investment pipeline. Specifically, BIP plans to develop almost one gigawatt of capacity over the next three years, which it expects to result in adjusted EBITDA increasing by more than five times from the $42 million (BIP share) that was booked in 2022. To finance the growth, BIP expects to create a self-funded structure whereby it will seek to monetize fully operating and contracted data centers to fund its capital backlog. BIP will hold its annual investor day on September 21 in Toronto and has noted that it expects to share more details on its outlook and specific growth plans for its global data center platform at that event.

Portfolio of assets continues to deliver predictable cash flow. In Q2/23, BIP’s FFO/unit was $0.72 versus our forecast of $0.73 and consensus of $0.73 (eight estimates; range of $0.72–0.73). As detailed in Exhibit 1 on page 3, FFO from the Utilities and Transport segments was largely in line with our forecast, with modestly lower-than-expected contribution from Midstream (mostly due to the Heartland outage) being mostly offset by lower-than-expected Corporate costs.

Valuation: Modest reduction to our price target given lower public and private market valuations for certain assets. Our new $45.00/unit price target (previously $47.00/unit) remains driven by our sum-of-the-parts valuation, which is now a range of $41.00–50.00 per unit (down from $43.00–51.00 per unit). The modest reduction in our valuation range is driven by lower public and private market valuations for certain assets, particularly in Data (i.e., towers and data centers) and Midstream.