Q1/24 RESULTS IN LINE; GROWING LEVERAGE TO DECARBONIZATION/DIGITALIZATION
THE TD COWEN INSIGHT
We believe that BIP's Q1/24 results/outlook serve as a useful reminder of what differentiates BIP vs. its utility/dividend yieldco peers, namely: a high level of inflation indexation (65%+), which provides a natural interest rate hedge, and cash flows that are increasingly correlated to decarbonization/digitalization.
Event
BIP reported Q1/24.
Impact: SLIGHTLY POSITIVE
Q1/24 Results: FFO/unit of $0.78 was in line with the Street/TDSI and up 8%
y/y. Transportation was the major growth driver, reflecting the recent Triton intermodal logistics acquisition, which is performing well above BIP's conservative underwriting assumptions. BIP estimates that ~30% of its current FFO is leveraged to decarbonization/digitalization, a percentage that should increase over time, as ~75%-80% of its capital project backlog and M&A pipeline relates to those macro trends.
Market Backdrop: BIP expects the environment to be more balanced between buyers vs. sellers in 2024, although our sense is that buyers are still somewhat advantaged, which is why BIP is being selective and reserving some dry powder. Credit markets have performed exceptionally well YTD, and activity levels for M&A processes are increasing.
Capital Deployment/Recycling: BIP's investment pipeline remains quite full, but it is only pursuing opportunities that offer the highest risk-adjusted returns. BIP has announced three acquisitions YTD, resulting in ~$500mm of equity deployment, and we would characterize those deals largely as tuck-ins, which typically offer among the LP's highest M&A returns. BIP also has a large pipeline of early-stage M&A opportunities that it believes could achieve returns above its 12%-15% target range (directionally in the 15%-20%+ range). That pipeline includes deals ranging from asset carve-outs to strategic partnerships, and is concentrated in OECD countries in Asia Pacific, North America, and Europe. Less than four months into the year, BIP has already generated >50% of its $2bln annual capital recycling target.
Corporate Liquidity: BIP ended Q1/24 with ~$2bln of corporate liquidity, which should be supplemented by a further ~$1bln of capital recycling.
Attractive Entry Point: The units offer an ~6% yield and trade at 12.4x EV/2024E EBITDA (consensus), which is at the low-end of the historical range of 12.5x-16.7x, and a valuation which we find very attractive relative to the quality/diversity of BIP's portfolio.