The CEO of Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) is well known in industry circles for finding long-term investments and projects that others overlook due to a short-term bias. Thinking in terms of decades has helped the company increase its stock by over 200% in the past 10 years alone.
Fortunately for investors looking to get in, the firm’s latest deal shows that it still has the ability to make bold acquisitions that should pay off for years to come.
Another attractive acquisition
This month, Brookfield announced its offer to buy Asciano Ltd., a dominant container port operator in Australia, for roughly $12 billion (including assumed debt). Asciano is a freight logistics company that was spun out of Toll Holdings Ltd. in 2007. It operates rail and port freight businesses in Australia and New Zealand.
Brookfield believes that a proper investment and rationalization program can modernized the assets, cut costs, boost profitability, and allow Asciano to generate substantial amounts of cash even if freight and coal volumes stay weak.
For example, last year Asciano revenues dropped 4%. Earnings, however, still rose 10% given the company’s large amount of room for efficiency gains. Brookfield is the right partner for the job to continue wringing higher profitability out of Asciano.
More to come
The combined company is much better positioned to compete more aggressively to buy new port assets. Brookfield’s CEO Sam Pollock stated that “there will be so many future development opportunities that will come to market, as the economy recovers and the government continues to encourage private investment.”
State governments are pushing to privatize assets as private companies like miners, energy producers, and industrial firms are in the process of unloading infrastructure. “There is an infrastructure deficit in almost every country, and it’s especially true in some of the developed economies like Australia and North America,” says Pollock. “We believe we are just at the start of this process.”
Opportunities will be worldwide
Brookfield already operates a portfolio of geographically diversified, high-quality, long-life infrastructure and utilities assets. These assets span four continents and are located both in developed and emerging economies, helping offset economic risk.
Current investments include utilities, energy, transport and communications infrastructure, all of which have steep barriers to entry. These assets typically provide irreplaceable products and services that experience relatively stable demand when measured over long periods of time.
With both developed and emerging market governments looking to streamline operations and cut ancillary projects, Brookfield is well positioned to step in and acquire unique assets that have limited amounts of bidders.
Should you buy the stock today?
This year, analysts expect earnings to come in at $2.17 a share. This means that shares are trading at less than 20 times EPS. While the company is still reinvesting back into the business at a rapid pace, both revenues and operating earnings have grown at double-digit rates over the past five years.
For a company that has a proven history of growth as well as an exciting pipeline of future projects, Brookfield Infrastructure Partners L.P. looks like a great long-term buy.
