What's old is new

Greg Dean's picture

Just over four years ago we wrote about one of our core holdings – Brookfield Infrastructure Partners (BIP). Here is what we said:


Coincident with the launch of the Cambridge Income Fund, we wanted to highlight a name we’ve owned for some time but have recently been buying for this fund. Brookfield Infrastructure Partners is a $4B mkt cap “utility-like” stock that recently reported strong results.

  • Three core platforms are timber (small), utilities and transportation
  • Own some of the highest quality/best return infrastructure assets globally
  • 5% dividend yield on a very conservative 60% payout ratio
  • Bermuda headquartered and thus unable to get added to the S&P/TSX means it’s not on everyone’s radar
  • $1B+ of liquidity and a lot of distressed sellers, we believe there is a lot of opportunity to put that money to work at very high returns (12-20%) to generate additional CF

Being part of the Brookfield “network” allows them to source M&A opportunities that are less competitive and offer better returns. We believe they will grow its CF and dividend faster than peers and we are paying a multiple of CF below peers. It is owned across all our funds and a top 10 position in many. We have done very well and expect to be rewarded in the future.


Brookfield’s strategy remains the same but a lot has changed within its business. It has sold its timber assets and built a decently sized energy infrastructure platform to complement the utility and transportation segments of the business. But more importantly, the stock has compounded at over 20% annually including reinvested dividends, and the payout ratio has declined from 65% to 60%.

You would think that having more than doubled our money we would be close to selling down our holding or eliminating it entirely. But in fact, we have never owned more, and the amazing thing is the business is cheaper today than it was in 2012. In addition, the management team has never had more opportunities to organically/inorganically allocate capital given the challenging environment in several of its end markets (e.g. energy, Brazil etc.).  Also we are being paid a near 6% yield while we wait for them to take advantage of the environment. We think the opportunity is the most compelling it has been in the six-and-a-half year history of the company and it remains a very large weight across the relevant funds.

 

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