Last week, I initiated a position in Brookfield Infrastructure Partners LP (BIP) (BIP.UN.TO). Its a company that I’ve been watching for a while and was waiting for a good time to jump in. That moment showed up when Brookfield announced that it had reached a deal to acquire the Australian company Asciano Ltd, a rail and port logistics company, for US$6.6B. This deal will give BIP a 55% stake in the company. The remaining stake is divided as: 23% going to Brookfield Asset Management (BAM), BIP’s parent company; 11% stake going to British Columbia Investment Management Corp; – a Victoria, BC-based pension plan; and 11% of the stake going to the Government of Singapore.
As blogger Freedom Thirty Five noted in his post last week, Australia and Canada share a lot of similarities. They are both resource rich economies that are facing financial headwinds due to the commodity market collapse. Both countries have a high standard of living, inflated housing market, similar currencies, etc. Canada’s largest trading partner is the US and Australia’s largest trading partner is China – current #1 and #2 economies of the world – who will eventually swap the #1 and #2 spots in the coming years. With a trading partner that big and other South Asian economies in the vicinity, investing in Australia is a great way to gain exposure to the emerging markets while staying invested in stable developed economies.
A Closer Look at Asciano Ltd
Asciano owns two main subsidiaries: Pacific National – Australia’s largest railroad company, and Patrick Corp – a logistics conglomerate with interests in shipping, rail and aviation, including a 62% shareholding in airline Virgin Blue. Asciano breaks their financial reporting into the following business segments: Pacific National, Terminals and Logistics, and Bulk & Automotive Port Services. The following charts from Apr 2015 Investor Update provide a great overview of the Asciano business.
As is evident from the last chart – bulk of the revenue and earnings comes from the Pacific National railway company. As I have discussed in previous posts, railroads are a fantastic business and provide a great investment opportunity due to their wide economic moat. The number and value of goods may go up and down a bit based on the economic cycle – but unless we invent teleportation, shipping and transportation are an absolute necessity. I am a big fan of the sector and couldn’t be happier with this deal. With this purchase by Brookfield Infrastructure, I indirectly own Pacific National Railway – which is my second railroad company, after Canadian National Railway (CNR.TO) (CNI). Brookfield Infrastructure has indicated that this is only the beginning and stepping stone for more deals to expand their influence in this sector. My position is not big by any measure and I will be looking to add more shares in the coming months in this fantastic company.
Full Disclosure: Long BIP.UN.TO, CNR.TO. My full list of holdings is available here.