Brookfield Infrastructure: Won’t Build Your Portfolio

Summary

Too many negatives persist to recommend retail value investors buy Brookfield at this time: losses, fewer assets than liabilities, debt, etc.

Yet infrastructure companies like Brookfield are in demand around the world because aging facilities are forestalling growth and threaten national security.

The average price target is near $70. That leaves the implied upside less than 5% and a middling dividend yield of about 3%. Also, insiders own a sliver of shares.

Luis Alvarez/DigitalVision via Getty Images Company Overview

Retail value investors buying stock in companies that build, own, operate, and maintain infrastructure facilities will make money. Yet, we are moderately bearish on Brookfield Infrastructure Partners LP (NYSE: BIPC ). (As a Limited Partnership, institutional investors can also participate through private funds .)

Give BIPC some time to digest the hostile takeover of Calgary-based Inter Pipeline Ltd ( OTCPK:IPPLF ). In addition, wait for BIPC to build a more substantial base of earnings over more time. The company needs to cut debt, better balance assets and liabilities. Squeezing more profits out of operations will make the stock more attractive.

They pay a middling dividend (3.03% fwd yield) only for the past two years — twice in FY ‘20 and four times in 2021. One-quarter of reported profits (Q3 ‘21) does not adequately assure long-term dividend payouts. Seeking Alpha gives the company a C- rating for the dividend. The average price target for analysts during the coming 12 months is near $70. That leaves the implied upside less than 5% at the current share price. There is scant news media coverage of the stock, so little to precipitate any push. There have been a mere four Seeking Alpha articles in all ’21; three analysts rated the stock Neutral and one bullish. Source Seeking Alpha

This is our third (see OEG and Quanta ) article about infrastructure companies. They are a clutch of companies binding society with their pipelines, road and railways, electric grids, power plants, and data networks. Their worth and reliability are indispensable.

BIPC and its subsidiaries own and operate in these sectors: utilities, energy, water, data networks, farming, and transportation. It has $115B of assets under management. In October ’21, BIPC closed an acquisition of Canadian public company Inter Pipeline . BIPC has operations in over 30 countries. In North America, BIPC has $410B Assets Under Management.

In Europe and the Middle East, it has $117B AUM.

AUM in the Asia Pacific market totals almost $80B.

AUM totals $44B in South America.

BIPC operates natural gas and electricity delivery systems in the UK.

Infrastructure investments let the company expand into real estate, insurance, private equity, and asset management .

Business Awaits and Waits

Antiquated and inadequate infrastructure forestalls economic development and threatens national security. For instance, Israelis roundly criticize their government for lagging in modernizing Internet networks, sewage treatments, water supplies, waste management, roads, railways. We have described electricity and natural gas delivery systems as sorrowful. The government invests 20% of its GDP in infrastructure but half goes to replace “worn-out” stuff. They rarely deliver infrastructure projects on time or within budget.

In the US, all non-defense investment infrastructure development dropped to about 2% of GDP by 2019. The American Society of Civil Engineers gives the US a C- grade for infrastructure quality. Build Back Better and other administration initiatives will add drops to the bucket of projects in desperate need.

BIPC generates maximum revenue in Brazil. Ironically, Brazil ranks 108th among 137 economies for the quality of its infrastructure. OECD countries spend 8%-10% of GDP on logistics, while according to one expert agency, Brazil must spend 15% or lose control.Plenty of business opportunities awaits infrastructure development and management companies. But as the examples of Israel and the US show, governments are reactive rather than proactive in this field. Brazil depends on over 60% of the investments in infrastructure to come from the private sector.The growth potential for infrastructure companies is tremendous and SA sees that potential in BIPC giving it relatively high Factor Grades: Source Seeking Alpha Financial Stress Concerns Us We and other investors take a more conservative, less enthusiastic view of BIPC than SA. BIPC’s stock is down 7.6% over the past 52-weeks. The share price bumped up about 11% in December ’21 to $67.26. The share price bump came after BIPC released Q3 ’21 improved earnings, revenue, and margins. Shares are substantially down from their 52-weeks high of $80.60.There is not much downward pressure on the shares with Short Interest at 4.2%. However, shares sold […]

source Brookfield Infrastructure: Won’t Build Your Portfolio