Brookfield Infrastructure Partners LP (BIP) is a global company, based in Bermuda, with utilities, transport, energy, and data infrastructure businesses in North and South America, Europe, and the Asia Pacific.
Segment Q1-2 2020 Earnings:
The Utilities segment is BIP’s biggest segment for Adjusted EBITDA and Funds From Operations – FFO, at 34% in Q1-2 2020, closely followed by Transport, at 29% of EBITDA and 28% of FFO. The Energy segment contributed ~27% in both categories so far in 2020.
BIP’s newest segment, Data Centers, also is its smallest, contributing just ~10% in FFO and EBITDA, but it’s the fastest growing one – EBITDA jumped 45% and FFO rose 46.5% in Q1-2 2020. As you may have heard, data centers have benefited from the work at home environment, and continue to ride the wave of the digitalization of society.
It had “higher volumes across our Australian and Brazilian rail networks, as well as the contribution from our recently acquired North American rail operation. These positive factors were more than offset by the loss of earnings associated with the sale of a European port business and the partial sale of our interest in our Chilean toll road operation. Results were also affected by a weaker Brazilian real and lower volumes following government-imposed lockdowns, which together reduced results by $29 million.” (BIP site)
Overall, revenue is up 26% so far in 2020, while EBITDA and FFO are roughly flat. Net income is down ~-55%, due to “fair value adjustments related to our corporate hedging program which totaled nearly $90 million for the quarter compared to gains of approximately $35 million in the same period of 2019. This led to a net loss for the three-month period ended June 30, 2020 of $61 million compared to net income of $98 million in the prior year.” (BIP site)
On 3/31/20, BIP and Brookfield Infrastructure Corp. (BIPC) jointly announced that Brookfield Infrastructure completed the previously announced creation of BIPC.
“From an economic and accounting perspective, the transaction was analogous to a unit split as the transaction did not result in any underlying change to aggregate cash flows or net asset value except for the adjustment for the number of units/shares outstanding. Each unitholder of record on March 20, 2020, received one (1) class A exchangeable subordinate voting share of BIPC for every 9 BIP units held, or approximately 0.11 Shares for each BIP unit. BIP unitholders now own approximately 32,800,000 Shares, or 70.4% of BIPC’s issued and outstanding Shares, with Brookfield Asset Management Inc. and its affiliates holding 29.6% of the remaining Shares. The Shares have commenced regular-way trading on the Toronto Stock Exchange and the New York Stock Exchange under the symbol BIPC.” (Source: BIP site)
BIPC’s earnings are a subset of BIP’s. On March 30, 2020, BIP contributed its regulated utilities businesses in Brazil and the U.K. to BIPC.
BIP issues a K-1 at tax time, while BIPC should issue a 1099 next year. There was a ~1.19% portion of BIP’s distributions which were treated as interest in 2019.
BIP breaks down the amount of capital deployed for each segment every quarter, with the balance remaining to be commissioned. For now, management appears to be concentrating more on the Utilities and Data Center segments, in terms of percentages in excess of their respective FFO/EBITDA contributions.
Although it contributes ~34% of FFO and EBITDA, the Utilities segment currently accounts for 44% of BIP’s Capex balances.
The Transport and Energy segments’ Capex balances are both lower than their respective FFO and EBITDA contributions, while the Data Center’s Capex balance is 11.8% of the total, vs. its 10% – 10.5% FFO/EBITDA contributions.
Like many other companies, BIP’s ROA and ROE suffered from much lower net income in Q1-2 2020. Its debt/equity is higher than utilities industry averages, while its net debt/EBITDA of 10.67X was lower than its ~12X leverage as of 12/31/19.
BIP’s debt ladder shows modest amounts, 7%/year, of total debt due in 2020 and 2021, which should give management plenty of time to refinance its larger maturities due from 2022 onward:
BIP had total liquidity of $4.27B, as of 6/30/20, vs. $2.97B as of 12/31/19.
With its mix of assets, BIP isn’t a straightforward match to any specific industry. We went with utilities comps, since that’s BIP’s biggest segment.
At $42.61, BIP’s P/sales, P/book and EV/EBITDA are at premium valuations vs. Utilities industry averages. While we don’t have P/FFO comps for the Utilities industry, at the other end of the spectrum, the data centers we’ve covered in recent articles have P/FFO valuations in the 25-plus range.
Since our last article on the BIP group of dividend stocks, the new entity, BIPC, has attracted the most interest from investors over the past three months, rising 17.37%.
BIPC, BIP, and BIP.PR.D shares have all outperformed the Utilities Select Sector SPDR Fund, but only BIPC has kept pace with the S&P 500, which is up 17.58% in this period.
BIP has six preferred series, which all have a rate reset feature every five years, which is a specific amount, plus whatever the five-year Canadian bond rate is at that time, OR a total ceiling rate.
The A series entered its new five-year rate as of 6/30/20. These shares were initially going to be reclassified into Series 1 shares, but failed to gather enough votes to do so: “There were 298,234 Series 1 Units tendered for reclassification, which is less than the 1,000,000 units required to give effect to reclassifications of Series 1 Units into Series 2 Units. Accordingly, there will be no reclassification of Series 1 Units into Series 2 Units, and holders of Series 1 Units will retain their Series 1 Units.” (BIP site)
“Brookfield determined the fixed distribution rate on its Cumulative Class A Preferred Limited Partnership Units, Series 1 (“Series 1 Units”) for the five years commencing July 1, 2020, and ending June 30, 2025.
If declared, the fixed quarterly distributions on the Series 1 Units during the five years commencing July 1, 2020, will be paid at an annual rate of 3.974% ($0.248375 per unit per quarter).”
At $15.85, the A shares yield 6.27%, the highest yield in the group, which runs from 5.67%, for the B series, on up to 6.27% for the A series. This table is in Canadian dollars:
With BIP’s much lower net income in Q1-2 ’20, the NI/Preferred dividend payout ratio rose to 42.24%, vs. 6% in full year 2019. It was much steadier on an FFO basis, again at a very low 3.55% in Q1-2 ’20, vs. 3.98% in 2019:
BIP has a five-year dividend growth rate of 9.46%. At $42.61, it yields 4.55%, while BIPC yields 4.06%. They should go ex-dividend ~8/28/20 and pay a month later in late September. The common FFO dividend payout ratio was 68.62% in Q1-2 2020:
Analysts have a low price target of $40.00, and an average price target of $47.54, for BIP. At $42.61, BIP is 6.5% over the low price target, and 10.4% below the average price target.
If you’re looking to goose BIP’s dividend yield on a short-term basis, the September $45.00 call strike pays $.60, allowing you to more than double the $.485 dividend. The call and dividend income of $1.085 offers you a 2.5% nominal yield in ~6 weeks, or 21.12% annualized.
Conversely, if you want to get a lower entry point, this longer term put-selling trade could fit the bill. BIP’s December $40.00 put strike pays $2.40, offering you a breakeven of $37.60, which is 6.4% below the $40.00 low price target:
NOTE: Put sellers don’t receive dividends. We use annualized yields in our tables so subscribers can compare trades of different lengths.You can see more details for these 2 trades on our Covered Calls Table and our Cash Secured Puts Table.
All tables furnished by DoubleDividendStocks.com, unless otherwise noted.
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Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.