By:
Thomas Biegler, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Brookfield Infrastructure Partners L.P. (BIP) is a global utilities
company that owns and operates infrastructure assets throughout North and South
America, Asia Pacific, and Europe in both developed and emerging markets. They were
founded 2007 as a subsidiary of Brookfield Asset Management with a specialization
in electric utilities and timber forestry and have since expanded their
portfolio. BIP is legally held in Bermuda with headquarters in Toronto.
• BIP’s operating
segments are well diversified, with transportation accounting for 34.7% of
revenues, followed by utilities at 22.7%, energy at 14.4%, and data infrastructure
at 3.7%.
• In the first half of 2019, BIP grew capital
expenditures by $180 million to expand their impact in their utilities and
transportation segments.
• Just this year, BIP has
completed the acquisitions of a natural gas pipeline in India for $230 million,
an Asia Pacific Data center business for a $50 million, and attained
co-controlling interest in a Brazilian data center operation for $130 million.
• BIP saw an 11% CAGR
between year ends 2014 and 2018, and with a strong and steady growth so far in
2019, this number can be expected to grow.
Key
points:
BIP was added to the AIM International
Fund in November of 2017 at a price of $42.50 with a price target of $50.31.
The investment thesis behind this purchase was that BIP would continue
consistent growth, expansions, and disinvestments with positive returns. Since
its purchase, BIP has done just that. They have managed to keep EBITDA margins
over 50% during the last 5 years despite numerous acquisitions and investments
into new markets. Additionally, they have placed more of an emphasis on
midstream business investments with their recent acquisitions of Northriver,
the largest independent natural gas gathering and processing operation in Canada,
and Indian Natural Gas Transmission, a key player in India’s natural gas grid
with over 1,480 km of cross-country gas pipelines. BIP
is also placing an emphasis on exiting markets where they no longer see high
potential for long-term growth. Just recently, they completed the sale of a 33%
interest in a Chilean Toll Road for roughly $365 million, resulting in an
after-tax IRR of 17%. Additionally, in the first half of 2019, BIP agreed to
sell 40% interest in European bulk port operations for $130 million in
proceeds.
BIP has also focused on
keeping investments diverse geographically. In Brazil, where they see 23.9% of total
revenue, there has been a negative YoY growth of -9.9% resulting in flat
returns over the past year. Additionally, in Australia, which accounts for
23.7% of revenue, there has been a negative trend for three years which have
resulted in operating losses. Fortunately, BIP has seen a YoY growth in revenue
of 227.1% from Colombia which is responsible for 14.9% of total revenue and is
their third largest exposure.
Heading forward,
management wants to expand further into North America and capitalize on the
nearly $150 billion of energy infrastructure opportunities available in the
United States. In addition, they plan to fix their losses in Australia by
seeking out more profitable investments, while also meeting growing demand in
India and Mexico. Finally, based on the success of their midstream acquisitions,
BIP aims to continue investing in midstream assets which provides further
diversification and allows for greater long-term sustainability.
What
has the stock done lately?
Over the last month, BIP’s
shares saw a drop in price in the middle of November, bottoming out at $48.84,
but has since seen steady growth, peaking at $50.33 towards the end of the month.
Despite these small fluctuations, prices have seen steady increases over the
last year and currently sits at a price of $50.17.
1 Month Stock Price Chart
Source: FactSet
Past
Year Performance:
As markets took a hit in late December of
2018, BIP’s share price dropped to $32.52 after seeing steady growth since
2016. Since then, BIP has been able to get back on track, seeing steady growth
that has been accelerating since August of this year. Their current price of
$50.17 represents a growth of over 54% since the hit in late 2018.
1 Year Price Chart vs. Benchmark
Source: FactSet
My
Takeaway:
Since BIP was added to
the AIM International Fund in November 2017, it nearly hit its price target and
shows no signs of slowing down. Although their acquisitions disinvestments are
numerous and may appear a little too aggressive, management clearly knows how
to expand and exit markets strategically, all while maintaining growth. BIP has
proven itself throughout its respective segments and is definitely a company to
be excited about moving forward.
