BIP's investment portfolio is its only source of value. All equity, thus NAV, must be derived from it. No magic, no mystery. Yet value is seldom discussed. Why is that?
Nice to see you get some press from the FT. Congrats on that. I tried to read BIP 2023 report but my eyes glazed over. Let me run this by you for your opinion:
2023 Operating income $4048 + 2739 depreciation - 450 maint capex = $6337. Cap that at 5% = $126,740.
Add JVs at 2x book, add cash. Gross asset value $139,401. Subtract debt $45,815. Net value $93,586.
LPs own only 15.64% of equity, so LP value = $14,636. Market cap today is $13,390.
Feedback appreciated. Great writing. Thanks!
I am not a fan of Brookfield. Anything set up this complicated is trying to obfuscate for a reason. I think you're on to something. However, my back of the envelope seems to match the market.
LPs have an equity percentage on the balance sheet of 15.64%, but they only have a "claim" on 7.04% of net income. I assume the GP is set up in such a way to skim a preference. So if you use the lower percentage, LPs only have a claim on net asset value of $6,588.
BIP is essentially a fund of funds of private infrastructure assets. It should not be valued by adding all the income statements together. Each company has a carrying value.
Help me understand why you can't use the cash flow to value the business. I want to believe Bruce Flatt is playing a lot of games, but I'm not seeing it so far. I mean, there's real distributable cash going to LPs. There was $701 million distributed in 2023 to the LPs as dividends. It seems like the dividends are covered (by a whisker) by operating cash flow. So, they appear to be legit (ie, not funded by debt, etc). Why aren't the dividends worth $13-15 per share?
Because it is not a business, it is a portfolio of mostly fund investments. BIP's co-investors in each of the BAM funds use the NAV of the funds (or co-investments) and add them up. Do you add the financial statements of your investment portfolio to come up with some value? No, you add the value of each company.
I am highly confident that BIP is financing distributions.
Nice to see you get some press from the FT. Congrats on that. I tried to read BIP 2023 report but my eyes glazed over. Let me run this by you for your opinion:
2023 Operating income $4048 + 2739 depreciation - 450 maint capex = $6337. Cap that at 5% = $126,740.
Add JVs at 2x book, add cash. Gross asset value $139,401. Subtract debt $45,815. Net value $93,586.
LPs own only 15.64% of equity, so LP value = $14,636. Market cap today is $13,390.
Feedback appreciated. Great writing. Thanks!
I am not a fan of Brookfield. Anything set up this complicated is trying to obfuscate for a reason. I think you're on to something. However, my back of the envelope seems to match the market.
LPs have an equity percentage on the balance sheet of 15.64%, but they only have a "claim" on 7.04% of net income. I assume the GP is set up in such a way to skim a preference. So if you use the lower percentage, LPs only have a claim on net asset value of $6,588.
BIP is essentially a fund of funds of private infrastructure assets. It should not be valued by adding all the income statements together. Each company has a carrying value.
That's it. It's not hard.
Btw, I am commenting based on 2023 annual report. I will read your December article for more context. Thanks.
Help me understand why you can't use the cash flow to value the business. I want to believe Bruce Flatt is playing a lot of games, but I'm not seeing it so far. I mean, there's real distributable cash going to LPs. There was $701 million distributed in 2023 to the LPs as dividends. It seems like the dividends are covered (by a whisker) by operating cash flow. So, they appear to be legit (ie, not funded by debt, etc). Why aren't the dividends worth $13-15 per share?
Because it is not a business, it is a portfolio of mostly fund investments. BIP's co-investors in each of the BAM funds use the NAV of the funds (or co-investments) and add them up. Do you add the financial statements of your investment portfolio to come up with some value? No, you add the value of each company.
I am highly confident that BIP is financing distributions.
Are there any public filings of co-investors which might show them holding BIP companies at NAV?