Brookfield Infrastructure Partners' Support Network Props Up a Broken LP – DF Research
Dalrymple Finance report exposes significant overvaluation of Brookfield Infrastructure Partners (BIP), highlighting discrepancies between IFRS NAV and sell-side estimates, unsustainable financial model, and concerns over transparency and return on investment.
DF Research has released an analysis that states BIP's reported NAV is misleading.
Stock info:
- Ticker: BIP (NYSE)
- Position: DF Research is short BIP stock
Why it matters:
- BIP's true NAV is approximately $10/unit, contrasting sharply with sell-side estimates of $27-$42
- Management's conflicting stance on valuation metrics raises transparency concerns
- BIP's financial model relies on continuous acquisitions and inflated valuations to maintain distributions
- Significant overvaluation: BIP trades at 3.2x its stated NAV, requiring an additional $12-24 billion in equity to justify higher estimates
- Co-investor Brookfield Infrastructure Income Fund (BII) uses identical carrying values, supporting the lower IFRS NAV
- Sell-side analysts' high NAV estimates based on flawed methodologies and misleading financial modeling
Between the lines:
- BIP expects to spend $4 billion on expansion projects over 3-4 years, raising questions about return on investment
- Management avoids discussing individual investment values, hindering accurate portfolio assessment
- Comparison with other infrastructure funds suggests BIP's reported returns may be overstated
- BIP received only $57 million in cash distributions despite higher reported FFO, indicating potential liquidity issues
- The report draws parallels between BIP's practices and past schemes involving inflated infrastructure valuations
FAQs:
What is the main discrepancy highlighted in the Dalrymple Finance report?
The report highlights a significant gap between BIP's IFRS NAV of ~$10/unit and sell-side estimates ranging from $27 to $42/unit.
How does the report explain the overvaluation of BIP?
The report argues that sell-side analysts use flawed valuation techniques, ignoring actual asset values in favor of generic multiples that inflate perceived NAV.
What potential risks does the report identify for BIP investors?
The report suggests BIP's financial model is unsustainable, relying on inflated valuations and continuous acquisitions to maintain high distributions and trading multiples.
How does the report use BII to support its argument?
The report notes that BII, a related-party NAV-reporting vehicle, uses the same carrying values as BIP for key investments, supporting the lower IFRS NAV estimate.
What evidence does the report provide to support its claims?
The report analyzes BIP's financial statements, compares BIP to other infrastructure funds, examines sell-side research, and scrutinizes management's statements and valuation practices.
Disclaimer
This summary is based on a report by DF Research. For the full, detailed analysis, please refer to the original source material: https://dfresearch.substack.com/p/the-great-deception-making-bips-10
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