Brookfield Infrastructure
Quick Take: Results were in line with our estimate and consensus
NYSE: BIP | USD 22.64 | Outperform | Price Target USD 45.00
Sentiment: Neutral
Our take
With an in-line quarter, we do not expect the results to materially impact BIP's unit price. Instead, we expect the market to look to the conference call for management's thoughts on the outlook for acquisitions and divestitures, as well as BIP's thoughts on the recent decline in the unit price, including the potential for additional repurchases under the normal course issuer bid to build on BIP having bought back close to one million units since the end of Q3/23.
Details
FFO/unit was roughly in line with our estimate and consensus. In Q3/23, Brookfield Infrastructure's FFO/unit was $0.73 versus our forecast of $0.75 and consensus of $0.74 (eight estimates; range of $0.73-0.77). From a segment perspective, FFO was as follows:
• Utilities: FFO for the quarter was $229 million versus our forecast of $225 million.
• Transport: During the quarter FFO was $205 million compared to our estimate of $203 million. • Midstream: In Q3/23, FFO was $163 million compared to our forecast of $169 million.
• Data: Quarterly FFO was $66 million versus our estimate of $74 million.
• Corporate: FFO was ($103) million compared to our forecast of ($92) million.
Highlighting "strong environment" for capital deployment at returns "well in excess" of its return target. BIP noted that the market backdrop has created a "strong environment" for capital deployment. The partnership also stated that it expects returns on new investments to be "well in excess" of its 12-15% return target and that its capital deployment in 2023 should provide it "with some of the best risk-adjusted returns [it has] seen in the last decade".
Further expansion in Data. BIP noted that it reached an agreement to acquire a portfolio of data centers out of bankruptcy from Cyxtera, as well as the associated real estate underlying several of the sites from third-parties. This transaction, which BIP expects to close in Q1/24, follows the previously-announced acquisitions of Data4 and Compass that closed in August and October, respectively.
Manageable future refinancing. The partnership highlighted that it has locked in interest rates for over 90% of its debt with an average maturity of seven years. Further, BIP noted that a hypothetical 200 basis point increase in its cost of debt would only impact FFO in 2024, 2025 and 2026 by $25 million, $20 million and $50 million, respectively. To frame those hypothetical amounts, BIP noted that it expects inflation indexation in 2023 to grow FFO by over $100 million.
Conference Call: Today at 9:00 AM (ET)