Brookfield Infrastructure Partners L.P. (TSX: BIP.UN) is one of the world's leading owners and operators of vital global infrastructure networks that help transfer and store energy, water, freight, passengers, and data. The company invests in the outstanding infrastructure assets with great growth potential, reliable cash flows, and high profits.

Key Updates:

• Balanced Risk Profile: The company’s operation is not dependent on a particular revenue stream as it derives income from Utilities, transportation, transmission & storage services and data services. Moreover, the company’s operation is spread across the major economies like North America, Europe, South America and Asia Pacific that provides ample scope for expansion along with lower dependence on a particular geography or a business segment. Despite the recent pandemic, the company reported a constant growth in its top line, which is encouraging.

Source: Company Report

• Growth in Cash flows: In FY21, the company reported its cash from operating activities of USD 2,772 million, which is highest since 2019, supported by strong growth in net profit. A higher cash flow from operations is encouraging as it supports the overall liquidity. Notably, the group primarily deals with contracted and regulated revenues that generates predictable and stable cash flows. Hence, we expect the above momentum to sustain in the coming years, which is mentioned-worthy.

Source: Company Report

• Industry Beating Margins: In FY21, the company reported its operating margin and pretax margin of 25% and 28.9%, respectively, as compared to the industry median of 20.7% and 12.2%, respectively. This indicates better cost-management when compared to the industry median. Moreover, the company reported its net margin of 23.6% in FY21, as compared to the industry median of 10.2%.

• Result Update: The company will disclose its Q1FY22 results on May 04, 2022.

Risks associated with investment

Introduction of new technologies might dampen the prospects of the company. Moreover, unable to renew existing contracts and win additional contracts from existing clients might impact the company’s order book.

FY21 Financial Highlights:

FY21 Income Statement Highlight (Source: Company Report)

• BIP declared its full-year result, wherein it posted a higher revenue at USD 11,537 million compared to USD 8,885 million in FY20. The growth was driven by higher income from each operating segments.
• Operating profit stood at USD 2,884 million, surged from USD 2,025 million in FY20, partially offset by higher direct operating cost and higher general & administrative expenses.
• Other income surged to USD 1,749 million from USD 234 million in FY20. Hence, the company reported a higher income before income taxes of USD 3,333 million, as compared to USD 1,195 million in FY20.
• The company posted a higher net income of USD 2,719 million v/s USD 904 million in FY20, due to above mentioned reasons, partially offset by an increase in the income tax expense.

Valuation Methodology (Illustrative): EV to EBITDA Based Methodology

Analysis by Kalkine Group

Stock Recommendation: 

The company has an impressive track record of constant dividend payment backed by stable cash flow generation. Notably, from 2009 to 2021, the company reported a 10% CAGR growth in its dividend distribution. Moreover, the stock of BIP carries a dividend yield of ~3.278% on an annualized basis, which looks decent considering the persisting interest rate scenario. We have valued the stock using the EV to EBITDA-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Public Service Enterprise Group Inc, CMS Energy Corp etc. and Consolidated Edison Inc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of BIP at the last closing price of CAD 83.42 on April 19, 2022.

One-Year Technical Price Chart (as on April 19, 2022). Source: REFINITIV, Analysis by Kalkine Group

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