Brookfield Infrastructure resembles an utility type company thanks to its reliable dividends and defensive characteristics.
However, Brookfield Infrastructure is growing faster than your average utility, and it is generating tremendous value with its development of platform businesses which add significant organic growth.
Shares are currently fairly valued with a ~3.4% dividend and potential returns in the high single-digits to low double-digits.
shaunl/E+ via Getty Images Brookfield Infrastructure ( BIP ) owns and develops high-quality infrastructure assets with significant barriers to entry, diversified by customer type, regulatory environment and geography. These include among others electric transmission lines, natural gas pipelines, rail operations, toll roads, gas storage, telecom towers, and data centers. These assets have proven to be reliable, and even during the Covid crisis the company generated profits overall, with only minor impacts to its revenue. Source: Brookfield Infrastructure Investor Relations
Two big things that differentiate Brookfield Infrastructure from its competitors are that it is very aggressive with its capital recycling, selling mature contracted assets and reinvesting in assets they can improve. The second one is that they build platforms, meaning that they generate the capabilities to create assets organically without having to buy them. This platform approach adds enormous value as building assets is often much cheaper than buying them in the market. Below are some examples of mature assets the company sold recently, including the multiple on cost (MoC) at which they sold them and the corresponding internal rate of return (IRR). Enwave is a great example of a business that was bought and turned into a platform, which meant that they developed its capability to grow significantly organically, and was later sold at a superb multiple. Source: Brookfield Infrastructure Investor Relations Platform Businesses
The company is using this same platform playbook with multiple other businesses, from residential infrastructure to global data centers. This is a big differentiating factor between BIP and many other utilities and YieldCos. The platform approach involves buying assets in the given sector, and then through a combination of bolt-on acquisitions and organically building new assets, the company accelerates its growth and creates value. Investors then value these companies at much higher multiples thanks to this development capabilities added to the businesses. Source: Brookfield Infrastructure Investor Relations
In addition to the platform strategy, the company is also benefiting by what it calls the infrastructure super-cycle. This includes tailwinds from the need of sovereigns to raise funds and privatize assets, the data infrastructure that will be needed to sustain the Internet’s growth, the need of the midstream sector for capital, and the bottlenecks and need for expansion of the transportation sector. Source: Brookfield Infrastructure Investor Relations
A lot of the future growth for BIP will come from the investments made in building new platforms. It expects to deploy $5 billion in building platforms in the next few years in four main areas: last-mile utility connections in the UK, Data Centers, Telecom towers, and residential infrastructure. Source: Brookfield Infrastructure Investor Relations
Previous platforms that the company built were sold at higher than market multiples, as the buyers valued this capability to build new assets. The best example the company gives is District Energy where the company was able to sell at a 30x multiple the business, compared to consensus multiples of ~15x. Other platform business were sold at higher than market multiples of ~33% higher, as investors valued significantly the capability to grow organically. Source: Brookfield Infrastructure Investor Relations
Of the new platform business the company is building one of the most interesting is data center infrastructure. It has attractive characteristics and there is growing demand for these assets as the Internet continues to expand. Source: Brookfield Infrastructure Investor Relations
This new platform business started with the acquisition of Ascenty in 2019, and since then BIP has partnered with data center REIT Digital Realty to scale the business to new markets. It has now 27 data centers across South America. Source: Brookfield Infrastructure Investor Relations
The business is going so well that they recreated the partnership with Digital Realty to expand in the fast growing market of India, which is a very fragmented market and where cloud penetration is expected to jump from 20% currently to 50% by 2025. Data center capacity in India is expected to grow 5.4x by 2030.
Source: Brookfield Infrastructure Investor Relations
If this platform business meets the company’s targets they believe they can end up generating $2 billion in value for BIP shareholders. A multiple of ~4x the capital estimated to be invested in the business. And this is […]