TD COMPANY UPDATE
EXPECTING SOLID Q1/24 RESULTS; UNITS INCREDIBLY UNDERVALUED, IN OUR VIEW
THE TD COWEN INSIGHT
BIP has come under renewed selling pressure, as the market prices in higher-for-longer interest rates. We believe that price action fails to recognize that ~65%+ of BIP's FFO is inflation-indexed, which provides a natural interest rate hedge. BIP offers an ~6%+ yield and trades at 11.6x EV/2024E EBITDA (consensus), which we find very attractive relative to the quality/diversity of its portfolio.
Event
BIP will report is Q1/24 results on Wednesday, May 1 (pre-market).
Impact: NEUTRAL
Q1/24 Results: The Street/TDSI are forecasting FFO/unit of $0.78, which implies a solid ~8% y/y increase. We recently hosted BIP for some marketing and the tone/content of the meetings reinforced our view that 2024 is off to a good start for the business (link).
Very Attractive Valuation: BIP is trading at 11.6x EV/2024E EBITDA, which is below
the low-end of its 10-year range of 12.5x-16.7x, and a level not seen since late-2015/ early-2016. Clearly, interest rates were lower then, but the quality/diversity of BIP's portfolio has also improved markedly in the interim. The basic characteristics of BIP's FFO are unchanged: ~90% is regulated/contractual, ~80% is generated in/hedged to U.S. dollars, ~65%+ is indexed to inflation, and ~70% has no volume/price sensitivity. However, North America represents ~45% of the business today vs. ~10% in late 2015/ early 2016, which has lowered the costs involved in hedging the Australian dollar and reduced South America to ~20% from ~25%. BIP also now owns nine platform businesses (~25%+ of invested capital) vs. one platform business (~5% of invested capital), which should support higher organic growth/higher valuations on exit. Finally, BIP now consistently recycles ~$2bln+ of capital/year by selling mature/de-risked assets, meaning that it no longer requires access to the equity market to fund new investments.
- Asset Class of the Future: We find BIP's valuation totally at odds with the M&A interest we are seeing in infrastructure managers. Blackrock's $12.5bln acquisition of Global Infrastructure Partners for ~25x-29x P/2024E FRE, excluding a $650mm retention pool/future carry, is by far the most high-profile transaction, but we are aware of at least three other deals. Infrastructure is among the fastest growing segments within private markets, driven by high government debt burdens and the need for modern infrastructure to accomodate the energy transition and the data-intensity of AI. An investment in BIP effectively provides exposure to each active vintage of Brookfield's private infrastructure funds, with the benefit of daily liquidity.
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