Bringing Data Into the Utility Space – A Recipe For Profit

BIP.UN - Brookfield Infrastructure Partners

Brookfield Infrastructure Partners is one of the largest owners and operators of diverse global infrastructure networks facilitating the movement and storage of energy, water, freight, passengers and data. The company owns assets across the utilities, transport, energy, and data infrastructure sectors.

The company has a large global presence in North America (30%), South America (25%), Europe (20%) and Asia-Pacific (25%). It operates through utilities, transport, energy, and data infrastructure segments. Its utilities business is highly contracted and earns a return on asset base spanning five countries - Australia, the U.S., Colombia, Brazil and the U.K. Its transport business is involved in the movement of freight, bulk commodities and passengers with operations in Australia and South America, toll roads in South America and India and ports across North America, Asia Pacific and the U.K. Brookfield’s energy business provides energy transmission, distribution, and storage services to customers in Canada, the U.S., India, and Australia, while its data infrastructure business provides critical infrastructure and services to transmit and store data globally.

Investment Data

Revenue Growth & Market Exposure

Brookfield Infrastructure’s portfolio provides diversified exposure to quality businesses with significant entry barriers. It invests in infrastructure assets that deliver essential goods and services. Brookfield Infrastructure has assets worth $66 billion under management. The company’s utility business caters to 6.9 million electricity and gas and 1.6 million residential infrastructure customers. In addition, Brookfield Infrastructure also operates 10,000 km of fibre backbone and 52 data centres through 7,000 multi-purpose towers and active rooftop sites.

Brookfield Infrastructure operates 18,500 km of natural gas pipeline, 2,200 km electricity transmission lines and 600 bcf natural gas storage. In addition, Brookfield Infrastructure also operates port, rail (10,300 km) and toll road (4,200 km) assets moving freight, bulk commodities and passengers across five continents. It successfully continues to undertake key investment initiatives for future growth and expansion, a recent case being penetrating the high-growth Indian telecom market.

The company engages in acquiring good quality businesses, restructuring its operations and subsequent sale of the asset at the right time. It focuses on the ownership of stable cash flow generating assets operating under regulated frameworks. Brookfield Infrastructure Partners stands in a good position to benefit from huge global investments in the infrastructure sector. The company has demonstrated a history of strong revenue and EBITDA growth over the years, growing them at a rate of 11% and 9% CAGR, respectively over the last five years. Regulatory frameworks and high capital commitments act as strong entry barriers for newcomers.

Dividends

Brookfield Infrastructure has successfully paid dividends since its inception in 2008 and has consistently increased them at a CAGR of 10.4% in the last five years. The company has a solid track record of annual per unit distribution growth and last raised its distribution by 6.9%. It currently sports a current annual dividend yield of 3.7%.

Brookfield Infrastructure has a solid performance record, delivering compounded annual total returns of 15% since its inception in 2008. Its utility portfolio benefits from steady, inflation-linked cash flows and energy businesses also generate stable revenues through long-term contracts with large-scale customers. Brookfield’s businesses thus provide regular and predictable cash flows for strong dividend growth. Moreover, the company is highly diversified by customer type, regulatory environment, and geographies. About 90% of FFO is generated from investment-grade or similar assets. The sectoral and geographical diversification thus reduces volatility and provides protection from any adverse regulatory action or market fluctuation.

Brookfield Infrastructure is making good progress on its capital recycling program and has so far sold 14 businesses over the last decade, generating $4.4 billion in gross proceeds. The company intends to utilize capital recycling programs to fund acquisitions and access capital markets prudently. Its objective is to generate an RoE of 12 -15% over the long term and to grow annual distribution by 5-9%. It also intends to achieve 60%-70% of the FFO target payout ratio.

Competition

Brookfield Infrastructure competes with the likes of Fortis, Emera, Atco Ltd, Canadian Utilities, Algonquin Power & Utilities Corp. Both Fortis and Emera engage in the generation, transmission, and distribution of electricity and gas to its customers and have assets worth billions of dollars, while ATCO is a diversified global corporation providing services and business solutions in structures & logistics, electricity, pipelines & liquids, commercial real estate and retail energy. Canadian Utilities is a subsidiary of ATCO and one of the biggest utilities in Canada.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:FTSFTSFortisUtilitiesUtilities - Regulated Electric0.6850.1623.2913.4220.613.740.03813.810.510741.910.096158Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BIP.UNBIP.UNBrookfield Infrastructure PartnersUtilitiesUtilities - Diversified0.6754.3316.5167.8320.610.800.05425.423.681442.150.146377Tollbooth - RegulatedYESYESNONOCanada1
TSE:HHHydro OneUtilitiesUtilities - Regulated Electric0.4824.9114.8917.9420.611.390.04074.070.729841.010.082635Tollbooth - RegulatedNONONONOCanada1
TSE:EMAEMAEmeraUtilitiesUtilities - Diversified0.7051.7712.6714.4520.613.580.04734.730.684442.450.107269Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BEP.UNBEP.UNBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.5064.6811.580.0020.61-0.370.04604.601.000042.170.075247Tollbooth - UnregulatedNONONONOCanada1
TSE:AQNAQNAlgonquin Power & Utilitties CorpUtilitiesUtilities - Renewable0.7517.299.1217.1720.611.010.04924.920.841440.620.135979Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CUCUCanadian UtilitiesUtilitiesUtilities - Diversified0.7231.968.7310.5520.613.030.05455.450.574841.740.145959Tollbooth - RegulatedNOYESYESNOCanada1
TSE:NPINPINorthland Power Inc.UtilitiesUtilities - Renewable0.5032.846.3717.1820.611.910.03653.650.6283121.200.047135Tollbooth - UnregulatedNONONONOCanada1
TSE:ACO.XACO.XAtcoUtilitiesUtilities - Diversified0.6838.504.429.0520.614.250.04524.520.409641.740.169568Tollbooth - RegulatedYESYESYESNOCanada1
TSE:ALAALAAltaGasUtilitiesUtilities - Regulated Gas0.6514.984.199.8820.611.520.06416.410.6316120.960.064147Tollbooth - RegulatedNONONONOCanada1
TSE:RNWRNWTransAlta Renewables Inc.UtilitiesUtilities - Renewable0.5613.723.6534.2120.610.400.06856.852.3490120.940.090646Tollbooth - UnregulatedNONOYESNOCanada1
TSE:INEINEInnergex Renewable Energy IncUtilitiesUtilities - Renewable0.5118.353.200.0020.61-0.520.03923.921.000040.720.039247Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CPXCPXCapital Power CorporationUtilitiesUtilities - Independent Power Producers0.4526.822.82205.0820.610.130.07167.1614.769241.920.143556Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BLXBLXBoralex Inc.UtilitiesUtilities - Renewable0.4329.062.800.0020.61-0.320.02272.271.000040.660.071555Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TATATransAltaUtilitiesUtilities - Independent Power Producers0.357.751.5715.0820.610.510.02192.190.333340.170.021904Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

As one of the largest globally diversified owners and operators of infrastructure assets in the world, Brookfield Infrastructure is well positioned to address the growing demands for energy and data. Countries across the world are supporting infrastructural development. The company operates in an attractive sector with growing opportunities. Given Brookfield Infrastructure’s strong FFO per unit and solid distribution growth, it should continue to comfortably meet this dividend growth guidance if not exceed it.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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