That’s courtesy of its sponsor Brookfield Asset Management (BAM),
the world’s largest infrastructure manager, which has been in operation
for over 115 years, and has $250 billion in assets under management.
Specifically, BAM uses its worldwide network of 70,000 experienced
employees in over 31 countries to put together large, and highly
profitable acquisition deals for BIP, including $2.8 billion in new investments in 2016.
Remember that because BIP is structured as an LP that pays out the majority of adjusted funds from operations or AFFO (its equivalent of free cash flow and what funds the distribution) to unit holders, meaning it constantly needs to raise external growth capital.
Fortunately, because of its unparalleled track record of excellent management execution, BIP is a Wall Street darling with incredible access to cheap capital.
For example, its strong unit price, and high AFFO yield on invested capital means that BIP could afford to fund its growth entirely with new equity, and AFFO/unit would still grow despite the dilution, allowing management to hit its payout growth target.
However, thanks to its ability to borrow at cheap interest rates, as well as management’s decision to retain around 30% of AFFO, BIP is leveraging its cheap equity raised capital and lowering its weighted average cost of capital (WACC), even further.
That results in even more profitable growth, which combined with an accelerating pace of new investments has resulted in AFFO/unit soaring 18.6% in the past quarter, and increasing the probability of another double-digit payout increase at the end of the year.
With that, we’ll suggest an entry into BIP around current levels. We’ll set an initial SSL in the idea at $42.50, which is just behind a key short-term retracement level, and we’ll set our initial target at that $52 and change level.
We could see shares of BIP pull back following its recent run, which would be fairly orderly, so it would be prudent to allocate 50% of what you’re looking to put into the stock now, and the other 50% in and when it pulls back.
Remember that because BIP is structured as an LP that pays out the majority of adjusted funds from operations or AFFO (its equivalent of free cash flow and what funds the distribution) to unit holders, meaning it constantly needs to raise external growth capital.
Fortunately, because of its unparalleled track record of excellent management execution, BIP is a Wall Street darling with incredible access to cheap capital.
For example, its strong unit price, and high AFFO yield on invested capital means that BIP could afford to fund its growth entirely with new equity, and AFFO/unit would still grow despite the dilution, allowing management to hit its payout growth target.
However, thanks to its ability to borrow at cheap interest rates, as well as management’s decision to retain around 30% of AFFO, BIP is leveraging its cheap equity raised capital and lowering its weighted average cost of capital (WACC), even further.
That results in even more profitable growth, which combined with an accelerating pace of new investments has resulted in AFFO/unit soaring 18.6% in the past quarter, and increasing the probability of another double-digit payout increase at the end of the year.
With that, we’ll suggest an entry into BIP around current levels. We’ll set an initial SSL in the idea at $42.50, which is just behind a key short-term retracement level, and we’ll set our initial target at that $52 and change level.
We could see shares of BIP pull back following its recent run, which would be fairly orderly, so it would be prudent to allocate 50% of what you’re looking to put into the stock now, and the other 50% in and when it pulls back.
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