Brookfield Infrastructure is a Strong Buy, says iA Capital

iA Capital Markets analyst Naji Baydoun has maintained a “Strong Buy” rating on Brookfield Infrastructure Partners (Brookfield Infrastructure Partners Stock Quote, Charts, News, Analysts, Financials NYSE:BIP), saying in a Wednesday report to clients that the company is making progress on its capital recycling initiatives.

New Zealand investment company Infratil announced on Tuesday that it has agreed to buy the majority of the remaining equity stake not already owned in One New Zealand (formerly Vodafone), New Zealand’s second-biggest phone company from Brookfield for NZ$1.8 billion.

The deal comes three years after a consortium of Infratil and Brookfield Infrastructure Partners co-acquired Vodafone for NZ$3.4 billion (US$2.2 billion), one of the county’s leading mobile operators with 2.7 million customers and over 1,550 mobile cell sites covering the majority of New Zealand’s population.

Then, in 2022, Infratil and BIP announced the sale of Vodafone’s mobile tower assets for NZ$1.7 billion, which allowed Brookfield to recoup the majority of its initial equity investment. 

Now, with the new announcement of Infratil buying Brookfield’s 50 per cent stake in One New Zealand for NZ$1.8 billion, Baydoun estimated about $275 million of net proceeds going to BIP. 

“The sale of the fibre optic assets announced yesterday and the previously completed sale of the tower business in 2022 are expected to generate a combined ~$415 million of net equity proceeds, or ~2.4x the initial invested capital. From a relative valuation perspective, we calculate ~12-13x forward EV/EBITDA transaction multiples for the two combined capital recycling initiatives at VNZ, well above the initial ~7.2x multiple upon initial investment,” Baydoun wrote in his update.

Baydoun said the sale helps Brookfield get strong returns on invested capital in a relatively short timeframe and it shows the continued execution and progress on the part of the company’s capital recycling initiatives, which are targeted at $2 billion for the 2023 year.

“Overall, we continue to like BIP’s investment profile, and the shares remain attractively valued from various perspectives,” he said.

With his “Strong Buy”, the analyst reiterated a 12-month target price of US$47.00 on BIP, translating to a projected return including distribution of 32.7 per cent.

“We view BIP as a unique and diversified way for investors to play the broad long-term infrastructure investment theme,” Baydoun wrote.