BIP - Brookfield Infrastructure: Don't Kid Yourself This Is A Really Good Deal

Summary

• Brookfield Infrastructure is demonstrating very strong operating fundamentals.
• It's actively recycling capital at attractive rates and is finding good investment opportunities.
• I also highlight the dividend, valuation, and other important points.

Growth investing can be fun when the times are good, but you don't want to be the last person standing when the music stops. This was the case for a number of tech stocks over the past year, and while some have seen a decent rally, most remain well below their all-time highs, and some smaller speculative names may never get back to their glory days highs.

That's why I've always advocated for having healthy exposure to entities that own tangible assets and better yet, infrastructure assets that are critical to the functioning of society and the economy.

Such I find the case to be with Brookfield Infrastructure Partners ( BIP ), which as shown below, remains far below its 52-week high of $46. In this article, I highlight what makes BIP a worthy long-term holding for income investors over the long run.

Why BIP?

Brookfield Infrastructure Partners (issues a schedule K-1) is a leading player in the global infrastructure space and owns and operates high quality and long-life assets in the utilities, transport, energy midstream, and data segments. It has assets globally in North and South America, Asia Pacific, and Europe, and is externally managed by Brookfield Corporation, one of the largest global alternative asset managers with $800 billion in assets under management.

BIP recently demonstrated impressive full year results, with FFO growing by 20% YoY to $2.1 billion. Also encouraging, a meaningful amount of this growth came from comparable assets, with organic growth coming in at a robust 10%.

Growth was driven in part by over $1 billion of new capital projects and another $1 billion of new acquisitions during 2022 that are now contributing to earnings. As shown below, BIP saw growth in all 4 segments, with utilities, transport, and midstream leading the way.

While the underlying data business didn't grow by as much as the other segments, BIP recently made a transformative acquisition for this segment in November, which is expected to increase data segment EBITDA by 30%, as noted during the recent conference call :

In November, our U.K. wireless infrastructure operator completed the purchase of a portfolio of approximately 1,100 towers from a strategic investor who sold as part of competition approval requirements. The transaction required approximately $70 million of equity, of which BIP funded $20 million. The acquisition is expected to increase EBITDA by over 30% and will double the existing tower portfolio in the U.K. to solidify our position as the largest pure-play tower company in the region. This excellent operational finish to the year, combined with the strength of our financial position gives us optimism as we enter 2023.

Remarkably, BIP is actively recycling capital at attractive rates. This includes the sale of its 50% owned interest in freehold landlord port in Victoria, Australia. The sale price was AUD $1.2 billion, which was at an impressive 30x 2022 EBITA multiple, resulting in net proceeds to BIP of $260 million. Furthermore, management has another round of assets for sale and expects to generate $2 billion of net proceeds for the partnership this year, with which it can deploy into other opportunistic purchases.

Looking forward, BIP is well positioned for continued growth with its strong BBB+ rated balance sheet with $3.4 billion in total liquidity. Moreover, less than 2% of its debt is maturing over the next 12 months, thereby mitigating near-term interest rate risk.

This lends support to BIP's 4.4% forward dividend yield. The dividend was recently raised by 6% and is well covered by FFO per share of $0.72, which grew by 11% YoY. It comes with a safe 64% payout ratio, a respectable 6.4% 5-year CAGR and 14 years of consecutive growth.

Lastly, BIP is trading in value territory at the current price of $34.74 with a forward P/FFO of just 11.3, and analyst expectations of 7% to 8% annual FFO per share growth over the next two years. For BIP's quality attributes and strong operating fundamentals, I would expect for shares to trade at an P/FFO of 14x. Analysts seem to agree that BIP is undervalued, with a consensus Buy rating and an average price target of $42, implying potential for strong double-digit total returns.

Investor Takeaway

Brookfield Infrastructure offers investors a compelling combination of an attractive dividend yield and value metrics. With the strength of its balance sheet, strong organic growth, and continued capital recycling program, BIP is well positioned for continued success this year. As such, value and income investors seeking income and potentially strong total returns ought to give BIP a hard look at current prices.

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