We came across a bearish thesis on Brookfield Infrastructure Partners L.P. (NYSE:BIP) on DF Research’s Substack by Keith Dalrymple. In this article, we will summarize the bears’ thesis on BIP. Brookfield Infrastructure Partners L.P. (NYSE:BIP)’s share was trading at $31.97 as of Dec 26th. BIP’s trailing and forward P/E were 99.90 and 48.78 respectively according to Yahoo Finance.
A slow moving freight train, revealing the importance of railway equipment.
Brookfield Infrastructure Partners (NYSE:BIP) is grappling with significant financial challenges, as evidenced by the details shared in its 3Q24 conference call. Beneath the confident messaging, the company’s financial structure reveals deep-seated issues. Year-over-year distribution growth in the quarter outpaced funds from operations (FFO) growth, signaling mounting liquidity pressures. The financial model appears unsustainable, with BIP’s year-to-date gross investment return on equity of 5% overshadowed by fees paid to Brookfield Asset Management (BAM), which amounted to 5.6% of net asset value (NAV). Combined with an 11% distribution payout, the total cash expenses exceeded 17%, leading to a staggering -13% decline in NAV.
The company’s liquidity position is further strained by a year-to-date cash payout estimated at 150%, resulting in a $415 million cash deficit. Asset-level performance underscores these issues, as key investments—representing roughly half of NAV—are underperforming and failing to upstream cash at levels aligned with their FFO contributions. This has forced BIP to finance dividends, as implied during management’s commentary on the call.
Despite the optimistic narrative put forth by leadership, the underlying financial pressures are becoming increasingly evident. Behind the scenes, BIP appears to be exploring unit- or share-based transactions to address its liquidity shortfall and mitigate the risk of equity collapse. These actions suggest a company under significant strain, working to navigate an untenable financial model.
At its rapidly eroding current valuation of 3.5x NAV, BIP’s market position highlights the structural flaws in its financial framework. The combination of high fees, excessive cash payouts, and underperforming assets undermines the company’s long-term viability. While management continues to promote the partnership as offering upside potential and downside protection, the financial reality paints a starkly different picture. Investors face substantial risks, as BIP’s reliance on aggressive distributions and weak investment returns creates a precarious outlook for the company.
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held BIP at the end of the third quarter which was 14 in the previous quarter. While we acknowledge the risk and potential of BIP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BIP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.