Recent Buy – Brookfield Infrastructure Partners LP

BIP

The market jitters continue as the world turns its eyes to the US Fed – will they or wont they raise the interest rates? There are a plethora of dangerous financial situations facing the world which could possibly send the stock and bond markets into a turmoil. I continue to purchase looking for good opportunities trying to tune out the noise as a majority of these occurrences are out of control. Whenever I make a purchase, I like to share my buys to document and illustrate how I am building my income stream over the course of months/years. My main goal is simply to keep investing at regular intervals and build my passive income over the course of time. In staying true to tradition, here’s another purchase in my portfolio, this time adding a new company to my portfolio.

I initiated a position in Brookfield Infrastructure Partners LP (BIP.UN.TO) (also trades as BIP on NYSE) with 35 shares @ C$53.20. The stock yields 5.18% adding US$74.20 (~C$96.50) to my forward annual passive income. Brookfield Infrastructure Partners, even though headquartered and based in Canada & trades on the TSX exchange, maintains its financials (and declares dividends) in US$.

Company Overview

Brookfield Infrastructure Partners L.P. owns and operates utility, transport, and energy businesses. The company’s Utilities segment operates a port facility that exports metallurgical and thermal coal mined in the central Bowen Basin region of Queensland, Australia; approximately 10,800 kilometers of transmission lines in North and South America; and approximately 2.4 million electricity and natural gas connections in the United Kingdom and Colombia. Its Transport segment provides transportation, storage, and handling services for freight, bulk commodities, and passengers through a network of 5,100 kilometers of track in Southwestern Western Australia; approximately 4,800 kilometers of rail in South America; approximately 3,200 kilometers of motorways in Brazil and Chile; and 30 port terminals in North America, the United Kingdom, and Europe. The company’s Energy segment offers energy transportation, distribution, and storage services through 14,800 kilometers of transmission pipelines; and 370 billion cubic feet of natural gas storage in the United States and Canada, as well as serves approximately 40,000 gas distribution customers in the United Kingdom. Brookfield Infrastructure Partners Limited serves as a general partner of Brookfield Infrastructure Partners L.P. The company was founded in 2007 and is based in Toronto, Canada.Corporate Structure

The Brookfield companies have a complicated corporate structure, with each entity intricately weaved with other entities to form a set of public and private companies. The companies include Brookfield Asset Management, Brookfield Property Partners, Brookfield Renewable Energy Partners, and Brookfield Infrastructure Partners. The simple view of where Brookfield Infrastructure Partners fits in under the Brookfield Asset Management umbrella is summarized below.

Brookfield Corporate Structure

Brookfield Corporate Structure

Recent Buy Decision

  • I sold my Utilities ETF in June 2015 and have been looking into buying individual companies that can give me dividend growth and better equity ownership. In July 2015, I initiated a small position in Algonquin Power & Utilities Corp (AQN.TO), and earlier this month I initiated a position in Canadian Utilities (CU.TO). This adds a third company in the utilities sector.
  • While the classification is under the Utilities sector, Brookfield Infrastructure (BIP) is, as the name suggests, truly a complete infrastructure company. BIP holds interests in Utilities (39% of revenue), Transport (43% of revenue), Energy (10% of revenue) and Communication Infrastructure (8% of revenue).
  • BIP has a great geographical diversification with operations in North America (8% of revenue), South America (27% of revenue), Europe (34% of revenue), and Australia (31% of revenue).
  • The utilities segment operates:
    • Coal terminals (handles 20% of global seaborne metallurgical coal exports from Australia)
    • 10,800 Kms of electricity transmission lines in North & South America;
    • Regulated distribution of electricity & natural gas connections.
  • The transport segment operates:
    • Railroads:
      • ~5,100 km of track, sole freight rail network in Southwestern Western Australia
      • ~4,800 km rail network in South America
    • Toll Roads
      • ~3,300 km of motorways in Brazil and Chile
      • Combination of urban and interurban roads that benefit from traffic growth and inflation
    • Ports
      • 30 terminals in North America, UK and across Europe
      • One of the UK’s largest port services providers
  • The energy segment operates:
    • Energy Transmission, Distribution and Storage
      • 14,800 km of natural gas transmission pipelines, located primarily in the U.S.
      • Over 40,000 gas distribution customers in the UK
      • 370 billion cubic feet of natural gas storage in the U.S. and Canada
    • District Energy
      • Delivers heating and cooling to customers from centralized systems including heating plants capable of delivering ~2.8 million pounds per hour of steam heating capacity and 251,000 tons of cooling capacity and distributed water and sewage services
  • The communication infrastructure operates:
    • Telecommunications Infrastructure
      • ~7,000 multi-purpose towers and active rooftop sites
      • 5,000 km of fibre backbone located in France
      • Generate stable, inflation-linked cash flows underpinned by long-term contracts with large, prominent customers
  • The diverse sectors of operations and geography, coupled with regulated and contractual cash flow makes it a very stable and attractive investment.
  • A wide economic moat
  • Funds from operations (FFO) have risen at 23% CAGR and distribution has risen 12% CAGR since 2009.
  • BIP is a Dividend Challenger having raised dividends for 7 consecutive years. The current yield is 5.18% and has 1-, 3-, and 5-year dividend growth rates of 11.6%, 13.3%, and 12.6%.
  • BIP has a BBB+ (stable) S&P credit rating and the debt/equity 1.86, and the company holds enough cash to service the debt. Debt repayment schedule has a well laddered maturity profile.
  • BIP just announced earlier this week that it will acquire Australian port operator Asciano for US$6.6B – which will  expand the company’s footprint in Australia and help better compete in the space giving BIP better recognition and visibility. The management has made it clear that this is only the beginning this transaction is a ‘stepping stone’ for more expansions in the future. While some share dilution is occurring as part of the deal, AFFO from the deal is expected to increase 7% immediately.

BIP map

 

BIP diversification

Brookfield Infrastructure Partners LP diversification

Risks

  • As with any investment, there are risks involved. Being in the utilities sector, the risks in the regulated industry is slightly lower. But the non-regulated industry, where most of the growth comes from – can see possible new regulations that could put future growth prospects in doubt.
  • Rise in interest rates can cause the stock prices to tumble in the utilities sector.
  • With international operations, currency fluctuations can cause an unknown movement in revenue, especially since the financials are reported in US$, the international earnings can seem depressed.

Further Reading

Full Disclosure: Long AQN.TO, BIP.UN.TO, CU.TO. My full list of holdings is available here.

 

10 thoughts on “Recent Buy – Brookfield Infrastructure Partners LP

  1. Awesome purchase R2R. I was looking at this last week and would definitely add any of the Bam family to our portfolio. I’m happy for your purchase and keep it up bud. Let’s build it up to greater heights. Cheers R2R.

    • Most of the companies in the BAM family are great – they are all well run and have great business models. I think except for one (cant remember if it was BAM or BPY – which has a low yield), most of them have a nice starting yield.
      Looking forward to see which one you buy, if you do.

      regards
      R2R

  2. Congrats on buying BIP.UN at an attractive valuation and yield. I’ve been looking at this company for a while now, and appreciate your analysis that simplifies the complex structure and operations of this business.

    • Thanks DIH. BIP has an attractive business model and a wide economic moat. The wide geographical diversification also makes it very attractive. Glad I was able to help you out in breaking down the corp structure and the operations.

      Best
      R2R

  3. Great buy buddy. I’ll take a look. Those assets are fantastic, and the barriers to entry are high. It’s not like any jerk can go build a new port terminal, cell tower, or mile of critical rail line. I saw your email a minute ago and will respond when my son goes down for the night
    -Bryan

    • The assets are fantastic indeed….they control the ports in Europe and now with the Asciano deal, they will control ports in Australia too – not to mention they will also now own Pacific National – one of the two main transport railroads in Australia. Really liking the business and the cash flow of the company…the stock price has been as stable as they come – a steady rise over the years. I will be looking to buy more in the future.

      No worries about the email – take your time.
      R2R

    • Utilities had a great year in 2014 – they were the best performing sector…but after the latest correction in the first half of 2015, I have started initiating positions in Utilities.

      Best wishes
      R2R

  4. Looks like a good buy to me. Diverse assets in diverse locales should protect you from any major headwinds.

    Does anyone know the tax liabilities of buying this company if you are American? It’s the general partner, right? So it’s taxed as qualified dividends, am I correct? LPs and MLPs can get so confusing.

    Sincerely,
    ARB–Angry Retail Banker

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