Inflation plus takeovers equals strong growth for Brookfield Infrastructure Partners LP (TSX—BIP.UN; NYSE—BIP), says Scotiabank analyst Robert Hope. He argues Brookfield Infrastructure could have one of the best growth outlooks in his coverage universe given its inflation-linked revenues and robust deal pipeline.
“It bears repeating how well-positioned Brookfield Infrastructure is in this inflationary environment. Management sees about 70 per cent of its revenues having local inflation adjustments, with the majority being in its utilities, transport, and data segments. While its midstream cash flows are not typically tied to inflation, we note that energy typically does well during inflationary periods,” says Mr. Hope on May 4.
Likely exceed $1.5-billion acquisition target
Management is confident that it will exceed its US$1.5-billion target in 2022. So far this year, it has secured US$1 billion of opportunities, which includes Australia’s electricity and gas distributor AusNet (US$500 million), New Zealand’s smart metering business Intellihub (US$215 million), and Australia’s broadband provider Uniti Group Ltd. (US$200 million), in addition to a number of smaller opportunities.
The company is also pursuing a number of private opportunities. The analyst assumes US$750 million of additional mergers and acquisitions in 2022 as well as US$1 billion in each of 2023 and 2024.
Expected to continue beating expectations
In 2022 and 2023, Mr. Hope expects continued above-average FFO (funds from operations) per-unit growth of 12-to-14 per cent, respectively, as the ramp-up of its large Heartland petrochemical project (located in Alberta) will add to an already-strong organic growth profile.
Overall first-quarter 2022 FFO per unit of US$0.96 was slightly below his US$0.98 estimate but in line with consensus of US$0.96 (range US$0.93-US$0.98). He does not materially change his go-forward estimates.
Robert Hope is a Toronto-based equity research director for Scotiabank. He specializes in the energy infrastructure space.
This is an edited version of an article that was originally published for subscribers in the May 20, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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