Where Will Brookfield Infrastructure Partners Stock Be in 5 Years?

Brookfield Infrastructure Partners (TSX:BIP.UN) kicked off 2024 with a bang. Where will it be in five years?

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Brookfield Infrastructure Partners (TSX:BIP.UN) is one of Canada’s largest infrastructure investors. Holding assets such as cell towers, data centres and ships, it owns a sizeable chunk of the world’s critical infrastructure. That alone doesn’t make its stock a buy, but it does make the Brookfield subsidiary’s collection of assets intriguing.

The question investors need to ask themselves is, “Where is this company likely to be in five years’ time?” As Warren Buffett likes to say, if you wouldn’t own a stock for five years, don’t even consider owning it for five minutes. In this article, I will come up with a basic forecast of where Brookfield Infrastructure Partners is likely to be in five years, so you can decide whether it’s a fit for your portfolio.

Revenue growth likely to continue

Brookfield Infrastructure Partners is likely to continue growing its revenue for the next five years. It has compounded its revenue at 31% per year over the last five years, and when you look at the assets it owns, it appears poised to continue growing. BIP invests in critical infrastructure such as utility equipment and data centres. These kinds of services are well known for their ability to raise their fees ever so slightly each year. So, I’d expect BIP’s revenues to continue growing well into the future. I’m not sure about 31% growth, but a growth rate of 10% on the top line appears very doable.

Earnings growth: Less certain

Here’s where things start to get a lot more complicated: earnings.

Brookfield Infrastructure Partners’s profit has not grown as much over the years compared to revenue. In 2008, the company earned $16.8 million in net income. In 2022, it earned $101 million in net income attributable to limited partners. Therefore, the company’s earnings compounded at 13.6% in the period. Certainly, this is a good rate of growth, but it’s nowhere near the growth rate in revenue.

When you read through BIP.UN’s annual reports, you start noticing a trend of larger and larger percentages of earnings going to the general partners (ordinary unitholders are “limited partners”). Over the 14-year period from 2008 to 2022, the company’s net income to limited partners did grow, and at a faster pace than the S&P 500 appreciated. However, the general partners seem to have gotten a bigger cut. In most years, that hasn’t been a problem, but in some years, such as 2017, it resulted in unitholders theoretically “losing money” while the general partners made money.

Where are things headed in the future? Well, historically, BIP.UN’s net income to limited partners grew at about half the rate that revenue did. If that trend persists and revenue growth slows to 10%, then we’d have earnings growing at 5%.

Keep in mind, when I called 10% revenue growth “doable,” that was just a rough estimate based on the rates that fairly large companies tend to grow. The five-year compounded annual (CAGR) revenue growth rate was 31%, and the trailing 12-month rate was 25%. There is a trend of deceleration here, but if the trend persists, it will be several years until BIP’s revenue growth slows to 10%.

One issue for BIP is debt. It has $10.6 billion in total debt; if interest rates rise, then that debt will have to be refinanced at higher rates. That will cause an increase in interest expenses that will reduce net income.

Foolish takeaway

All things considered, I expect Brookfield Infrastructure Partners to keep growing as a company, but at a slower pace than it grew at in the past. The company’s interest expenses increased in 2023, and it doesn’t look like rates are coming down anytime soon. However, the top-line growth is as strong as ever. I’d expect the company to compound its earnings at something like 5% to 10% over the next five years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Brookfield. The Motley Fool recommends Brookfield, Brookfield Corporation, and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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