BIP: The Quiet Collapse
While management projects confidence of the partnership's ability to generate more cash in the future, it is quietly collapsing as expenses increase and equity evaporates.
Please see the disclaimer at the end of this post.
The post is a summary of the full report available here:
Management had little good news on the 3Q24 conference call. Financial stress was hinted at in LP-level financial statistics which show y/y distribution growth in the quarter exceeding FFO growth – but that is only the tip of the iceberg. We believe liquidity issues are much worse than discussed in the Q&A on the call.
The partnership’s financial model is not viable. YTD gross investment return on equity of 5% was swamped by fees paid to BAM of 5.6% of net asset value; combined with 11% distributions, cash expenses total over 17%, resulting in a -13% decline in NAV.
We estimated the YTD cash payout of 150%, resulting in a $415M cash deficit.
Asset-level analysis confirms cash flow problems. We examined YTD financial reports for assets totaling ~50% of NAV. Key investments are underperforming and are not upstreaming cash levels close to their FFO contribution, requiring dividends to be financed, as alluded to on the call.
Behindthe confident façade, we suspect that management is likely working diligently to engineer a unit/share-based transaction to both generate cash and prevent a collapse of equity.
We remain short BIP units. The math is simple and incontrovertible. Our analysis shows that management’s sales pitch of upside potential, downside protection and a “conservative payout ratio” does not comport with the financial reality where fees and expenses far exceed investment returns. We believe BIP is an investment fund with an untenable financial structure trading at 3.5x rapidly eroding NAV.
DISCLAIMER
This report represents the opinions of Keith Dalrymple and Dalrymple Finance on Brookfield Infrastructure Partners. It is an opinion piece and should not be taken as investment advice of any kind. This is not an offer to sell or a solicitation of an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction.
BIP’s webpage provides the names of sell-side analysts and firms that provide research coverage. The firms and analysts listed are in the business of providing investment advice to individual and institutional investors. We strongly encourage those seeking investment advice to consult one or more of the sell-side research firms listed.
The report is based on publicly available information and due diligence Dalrymple Finance believes to be accurate and reliable. However, it is presented “as is” without warranty of any kind, whether express or implied. Dalrymple Finance makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. This report contains a large measure of analysis and opinion. It is subject to change without notice.
Following the publication of this report we intend on continuing to transact in the securities. We may be long, short or have no position at any time. That position may change at any time.
We are investors with the goal of profiting from our research. You should assume that as of the publication date, that Dalrymple Finance, Keith Dalrymple and/or affiliates have a position in related securities. We and affiliates have a vested financial interest in entity discussed in this report.
In no event shall Dalrymple Finance or Keith Dalrymple be liable for any claims, losses costs or damages of any kind, including direct, indirect and otherwise, arising out of or in any way connected with information in this report.
Many years ago I always added the disclaimer: I do not warrant, represent or endorse anything I say after it is said. Check the facts presented and come to your own conclusions!
Why own the cash cows if you can own the farmer (BN)? Anyway, BN distributable earning is not trustworthy. Part of that is debt taken at the subsidiaries level.