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Brookfield Infrastructure Partners L.P. (BIP.UN)
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Brookfield Infrastructure Corporation Class A Exchangeable Subordinate Voting Shares (BIPC)
Back on Oct 17-20, a few questions were asked about the waterfall in stock price of BIP, but there was only comments with regard to dividend stability and a few big sellers like BMO and Morgan Stanley. Yesterday (Oct 28th) a short report, by Keith Dalrymple, was discussed by Seeking Alpha (found under BIPC:US). Alpha wasn't too impressed and here are their conclusions:
"I held BIP for more than 10 years until I sold everything upon reading and thinking over the report.
Even though his report specifically targeted BIP, all Brookfield companies will be affected if the report is only partially true. In the world of alternative asset managers, reputation means a lot and it is questioned by the report."
Can I please have your opinion. Thx.
Certainly the report likely contributed to the decline. The report was issued October 23 right in the middle of a 'bad' market. We did not become aware of it immediately. We are a bit surprised the author of the SA report (which reviewed trhe short report) panicked publicly and sold 'just' on a short sellers' report which (by design) is self-serving. As far as short reports go, though, it was better than most. The main concern on BIP centered around its cash flow reported (FFO) versus actual cash received from subsidiaries. The other concern is that the report believes net asset value (NAV) is overstated. NAV can always be debated, especially when a company owns private subsidiairies where financial data is not available. In a higher interest rate environment, most companies are indeed worth less, as well. But for cash flow, the actual cash received from operations at BIP has grown from $632M in 2015 to more than $3.1B in the past 12 months. Regardless of how one views NAV, cash in is more than twice distributions paid. Book value of assets have gone from $15.6B to more than $72B in nine years. The short report also questions the subsidary and fee set up with BIP providing large fees to BAM/BN. This is true, but nothing new, and part of all Brookfield set ups. It is essentially how the entire group has been set up. BIP shares have nearly doubled in 10 years, and distributions are up 100% in that time. The report will no doubt cause some concern, but the stock has already declined 30% this year, and some of the concern is certainly priced in. The short interest in the US is only 0.86%, so short sellers really haven't put their money on this bet. BIP is certainly not risk free, but we would look to its history of creating value moreso than a self-dealing report that criticizes everything it can. The company has noted it is not likely to comment on the report, not considering it material to BIP.