There is a growing global demand for infrastructure to support economic development and population growth. The OECD has estimated that by 2030 the world will require a massive US$53 trillion in infrastructure investments. According to the OECD, the top categories required are roads, power generation, and distribution as well as telecommunications infrastructure.
This growing trend leaves Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) uniquely positioned to meet this increasing need.
Now what?
You see, Brookfield Infrastructure possesses a global diversified portfolio of infrastructure assets located in both developed and more rapidly growing emerging economies. This portfolio holds assets across all of the major categories of infrastructure, including electricity transmission, gas pipelines, ports, toll roads and telecommunications.
More importantly, its holdings are focused on assets with natural monopolies due to large capital requirements, regulatory hurdles, geographic saturation, and other economic moats. This endows Brookfield Infrastructure with a wide multifaceted economic moat that protects its competitive advantage. The relatively unchanging demand for the utilization of these assets virtually guarantees Brookfield Infrastructure’s earnings.
Meanwhile, the growing demand for infrastructure globally, primarily because of increasing population and rapidly growing emerging markets, will help Brookfield Infrastructure’s earnings grow over time.
However, it is Brookfield Infrastructure’s skilled management and growth plans that make it a compelling investment that is well positioned to take advantage of this global need for infrastructure.
You see, by the end of April 2015, it had amassed a massive war chest with which to make acquisitions, and management has a solid track record of acquiring distressed assets at a bargain price. Just recently, it acquired Niska Gas Storage Partners LLC for US$912 million, including the assumption of debt. This seems costly for a company that’s had its share price battered because it is operating in an industry that has fallen into disfavour due to weak natural gas prices and a sharp decline in margins.
Nonetheless, Niska was worth well over double this amount only a few years back, and natural gas is expected to rebound over time. Brookfield Infrastructure possesses the deep pockets required to turn the business around and wait for natural gas to bounce back.
It is also eyeing the acquisition of a range of distressed infrastructure assets in Brazil, and is set to deploy up to US$2 billion there over the next 18 months. This is because a number of Brazilian construction companies are suffering from financial distress because of the sharp downturn in its economy.
Many of these companies are also vulnerable because they are embroiled in the Petrobras SA corruption scandal, which has already forced construction company Grupo OAS to file for bankruptcy protection. Brookfield Infrastructure is in discussion with OAS to purchase its 24% holding in toll road, airport, and urban transport company Invepar.
So what?
Brookfield Infrastructure is well positioned to cash in on the growing global demand for infrastructure, while taking advantage of purchasing distressed assets at bargain prices. Over time, this will boost its cash flow profile as well as its earnings and underlying asset values, which should translate into solid share price appreciation. While investors are waiting for its shares to grow in value, they will be rewarded by a very sustainable distribution with a juicy 5% yield.
