Intrinsic value of Brookfield Infrastructure Partners - BIP

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$39.11

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$39.11

 
Intrinsic value

$8.67

 
Up/down potential

-78%

 
Rating

str. sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BIP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 10.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  14.02
  48.80
  44.42
  40.48
  36.93
  33.74
  30.86
  28.28
  25.95
  23.85
  21.97
  20.27
  18.74
  17.37
  16.13
  15.02
  14.02
  13.12
  12.30
  11.57
  10.92
  10.33
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
Revenue, $m
  2,115
  3,147
  4,545
  6,385
  8,743
  11,692
  15,301
  19,628
  24,721
  30,618
  37,344
  44,915
  53,334
  62,598
  72,698
  83,617
  95,338
  107,843
  121,113
  135,131
  149,883
  165,358
  181,551
  198,459
  216,086
  234,440
  253,534
  273,385
  294,018
  315,458
  337,739
Variable operating expenses, $m
 
  2,191
  3,142
  4,394
  5,998
  8,004
  10,459
  13,402
  16,867
  20,878
  25,454
  30,554
  36,281
  42,584
  49,454
  56,882
  64,855
  73,362
  82,389
  91,925
  101,960
  112,487
  123,503
  135,005
  146,996
  159,481
  172,470
  185,974
  200,010
  214,595
  229,752
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,676
  2,191
  3,142
  4,394
  5,998
  8,004
  10,459
  13,402
  16,867
  20,878
  25,454
  30,554
  36,281
  42,584
  49,454
  56,882
  64,855
  73,362
  82,389
  91,925
  101,960
  112,487
  123,503
  135,005
  146,996
  159,481
  172,470
  185,974
  200,010
  214,595
  229,752
Operating income, $m
  439
  956
  1,403
  1,991
  2,745
  3,688
  4,842
  6,225
  7,854
  9,739
  11,890
  14,361
  17,053
  20,015
  23,244
  26,735
  30,483
  34,481
  38,724
  43,206
  47,923
  52,871
  58,048
  63,454
  69,090
  74,959
  81,064
  87,411
  94,008
  100,863
  107,987
EBITDA, $m
  886
  1,654
  2,389
  3,357
  4,596
  6,147
  8,044
  10,319
  12,996
  16,096
  19,632
  23,612
  28,038
  32,909
  38,218
  43,959
  50,121
  56,695
  63,671
  71,040
  78,795
  86,931
  95,444
  104,333
  113,599
  123,248
  133,286
  143,722
  154,569
  165,841
  177,554
Interest expense (income), $m
  366
  366
  732
  1,222
  1,866
  2,693
  3,726
  4,991
  6,507
  8,292
  10,359
  12,716
  15,369
  18,320
  21,566
  25,106
  28,932
  33,040
  37,422
  42,073
  46,985
  52,155
  57,578
  63,253
  69,178
  75,356
  81,788
  88,479
  95,436
  102,666
  110,180
Earnings before tax, $m
  543
  590
  671
  770
  879
  995
  1,116
  1,234
  1,347
  1,447
  1,531
  1,645
  1,684
  1,695
  1,678
  1,630
  1,551
  1,441
  1,302
  1,133
  938
  716
  470
  202
  -88
  -397
  -724
  -1,068
  -1,428
  -1,803
  -2,193
Tax expense, $m
  15
  159
  181
  208
  237
  269
  301
  333
  364
  391
  413
  444
  455
  458
  453
  440
  419
  389
  351
  306
  253
  193
  127
  54
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  373
  431
  490
  562
  641
  727
  814
  901
  983
  1,056
  1,118
  1,201
  1,229
  1,238
  1,225
  1,190
  1,132
  1,052
  950
  827
  685
  523
  343
  147
  -88
  -397
  -724
  -1,068
  -1,428
  -1,803
  -2,193

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  837
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  21,275
  30,555
  44,127
  61,989
  84,881
  113,518
  148,553
  190,560
  240,009
  297,261
  362,567
  436,067
  517,807
  607,752
  705,803
  811,815
  925,616
  1,047,021
  1,175,853
  1,311,948
  1,455,170
  1,605,417
  1,762,629
  1,926,787
  2,097,924
  2,276,117
  2,461,493
  2,654,227
  2,854,540
  3,062,701
  3,279,020
Adjusted assets (=assets-cash), $m
  20,438
  30,555
  44,127
  61,989
  84,881
  113,518
  148,553
  190,560
  240,009
  297,261
  362,567
  436,067
  517,807
  607,752
  705,803
  811,815
  925,616
  1,047,021
  1,175,853
  1,311,948
  1,455,170
  1,605,417
  1,762,629
  1,926,787
  2,097,924
  2,276,117
  2,461,493
  2,654,227
  2,854,540
  3,062,701
  3,279,020
Revenue / Adjusted assets
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
Average production assets, $m
  12,025
  17,891
  25,839
  36,298
  49,703
  66,471
  86,986
  111,583
  140,538
  174,063
  212,303
  255,341
  303,205
  355,872
  413,287
  475,362
  541,999
  613,089
  688,527
  768,218
  852,082
  940,060
  1,032,116
  1,128,240
  1,228,450
  1,332,792
  1,441,339
  1,554,196
  1,671,490
  1,793,380
  1,920,047
Working capital, $m
  117
  -217
  -314
  -441
  -603
  -807
  -1,056
  -1,354
  -1,706
  -2,113
  -2,577
  -3,099
  -3,680
  -4,319
  -5,016
  -5,770
  -6,578
  -7,441
  -8,357
  -9,324
  -10,342
  -11,410
  -12,527
  -13,694
  -14,910
  -16,176
  -17,494
  -18,864
  -20,287
  -21,767
  -23,304
Total debt, $m
  8,367
  15,571
  25,994
  39,712
  57,294
  79,287
  106,194
  138,455
  176,432
  220,402
  270,556
  327,004
  389,781
  458,859
  534,162
  615,579
  702,978
  796,217
  895,160
  999,681
  1,109,676
  1,225,066
  1,345,804
  1,471,878
  1,603,311
  1,740,163
  1,882,532
  2,030,551
  2,184,392
  2,344,259
  2,510,393
Total liabilities, $m
  16,262
  23,466
  33,889
  47,607
  65,189
  87,182
  114,089
  146,350
  184,327
  228,297
  278,451
  334,899
  397,676
  466,754
  542,057
  623,474
  710,873
  804,112
  903,055
  1,007,576
  1,117,571
  1,232,961
  1,353,699
  1,479,773
  1,611,206
  1,748,058
  1,890,427
  2,038,446
  2,192,287
  2,352,154
  2,518,288
Total equity, $m
  5,013
  7,089
  10,237
  14,381
  19,692
  26,336
  34,464
  44,210
  55,682
  68,965
  84,115
  101,167
  120,131
  140,999
  163,746
  188,341
  214,743
  242,909
  272,798
  304,372
  337,599
  372,457
  408,930
  447,015
  486,718
  528,059
  571,066
  615,781
  662,253
  710,547
  760,733
Total liabilities and equity, $m
  21,275
  30,555
  44,126
  61,988
  84,881
  113,518
  148,553
  190,560
  240,009
  297,262
  362,566
  436,066
  517,807
  607,753
  705,803
  811,815
  925,616
  1,047,021
  1,175,853
  1,311,948
  1,455,170
  1,605,418
  1,762,629
  1,926,788
  2,097,924
  2,276,117
  2,461,493
  2,654,227
  2,854,540
  3,062,701
  3,279,021
Debt-to-equity ratio
  1.669
  2.200
  2.540
  2.760
  2.910
  3.010
  3.080
  3.130
  3.170
  3.200
  3.220
  3.230
  3.240
  3.250
  3.260
  3.270
  3.270
  3.280
  3.280
  3.280
  3.290
  3.290
  3.290
  3.290
  3.290
  3.300
  3.300
  3.300
  3.300
  3.300
  3.300
Adjusted equity ratio
  0.204
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  373
  431
  490
  562
  641
  727
  814
  901
  983
  1,056
  1,118
  1,201
  1,229
  1,238
  1,225
  1,190
  1,132
  1,052
  950
  827
  685
  523
  343
  147
  -88
  -397
  -724
  -1,068
  -1,428
  -1,803
  -2,193
Depreciation, amort., depletion, $m
  447
  698
  986
  1,365
  1,851
  2,459
  3,202
  4,093
  5,142
  6,357
  7,742
  9,251
  10,986
  12,894
  14,974
  17,223
  19,638
  22,213
  24,947
  27,834
  30,873
  34,060
  37,396
  40,878
  44,509
  48,290
  52,222
  56,311
  60,561
  64,978
  69,567
Funds from operations, $m
  798
  1,129
  1,476
  1,927
  2,492
  3,185
  4,016
  4,994
  6,125
  7,413
  8,860
  10,452
  12,215
  14,131
  16,199
  18,413
  20,770
  23,266
  25,897
  28,661
  31,557
  34,583
  37,739
  41,025
  44,421
  47,893
  51,498
  55,243
  59,133
  63,174
  67,374
Change in working capital, $m
  45
  -71
  -96
  -127
  -163
  -204
  -249
  -299
  -351
  -407
  -464
  -522
  -581
  -639
  -697
  -753
  -809
  -863
  -916
  -967
  -1,018
  -1,068
  -1,117
  -1,167
  -1,216
  -1,266
  -1,317
  -1,370
  -1,424
  -1,479
  -1,537
Cash from operations, $m
  753
  2,297
  1,573
  2,054
  2,655
  3,389
  4,265
  5,293
  6,477
  7,820
  9,324
  10,974
  12,796
  14,771
  16,896
  19,166
  21,579
  24,128
  26,813
  29,629
  32,575
  35,651
  38,856
  42,192
  45,637
  49,159
  52,816
  56,613
  60,557
  64,654
  68,911
Maintenance CAPEX, $m
  0
  -436
  -648
  -936
  -1,315
  -1,801
  -2,408
  -3,152
  -4,043
  -5,092
  -6,307
  -7,692
  -9,251
  -10,986
  -12,894
  -14,974
  -17,223
  -19,638
  -22,213
  -24,947
  -27,834
  -30,873
  -34,060
  -37,396
  -40,878
  -44,509
  -48,290
  -52,222
  -56,311
  -60,561
  -64,978
New CAPEX, $m
  -690
  -5,867
  -7,947
  -10,459
  -13,405
  -16,768
  -20,515
  -24,597
  -28,955
  -33,525
  -38,240
  -43,038
  -47,863
  -52,668
  -57,414
  -62,076
  -66,636
  -71,090
  -75,438
  -79,691
  -83,864
  -87,978
  -92,056
  -96,124
  -100,210
  -104,342
  -108,548
  -112,856
  -117,295
  -121,889
  -126,667
Cash from investing activities, $m
  -1,058
  -6,303
  -8,595
  -11,395
  -14,720
  -18,569
  -22,923
  -27,749
  -32,998
  -38,617
  -44,547
  -50,730
  -57,114
  -63,654
  -70,308
  -77,050
  -83,859
  -90,728
  -97,651
  -104,638
  -111,698
  -118,851
  -126,116
  -133,520
  -141,088
  -148,851
  -156,838
  -165,078
  -173,606
  -182,450
  -191,645
Free cash flow, $m
  -305
  -4,006
  -7,023
  -9,341
  -12,065
  -15,180
  -18,658
  -22,456
  -26,521
  -30,796
  -35,222
  -39,756
  -44,319
  -48,883
  -53,412
  -57,884
  -62,281
  -66,599
  -70,839
  -75,009
  -79,123
  -83,200
  -87,260
  -91,327
  -95,451
  -99,692
  -104,021
  -108,466
  -113,049
  -117,797
  -122,733
Issuance/(repayment) of debt, $m
  770
  7,778
  10,424
  13,718
  17,581
  21,993
  26,907
  32,261
  37,977
  43,970
  50,155
  56,448
  62,777
  69,078
  75,303
  81,417
  87,399
  93,240
  98,943
  104,521
  109,994
  115,390
  120,738
  126,074
  131,433
  136,852
  142,369
  148,020
  153,841
  159,867
  166,133
Issuance/(repurchase) of shares, $m
  180
  0
  0
  0
  0
  0
  0
  0
  17
  109
  219
  360
  507
  672
  857
  1,061
  1,284
  1,526
  1,785
  2,062
  2,356
  2,667
  2,995
  3,338
  3,722
  4,180
  4,660
  5,160
  5,681
  6,223
  6,786
Cash from financing (excl. dividends), $m  
  1,443
  7,778
  10,424
  13,718
  17,581
  21,993
  26,907
  32,261
  37,994
  44,079
  50,374
  56,808
  63,284
  69,750
  76,160
  82,478
  88,683
  94,766
  100,728
  106,583
  112,350
  118,057
  123,733
  129,412
  135,155
  141,032
  147,029
  153,180
  159,522
  166,090
  172,919
Total cash flow (excl. dividends), $m
  1,131
  3,772
  3,401
  4,377
  5,517
  6,813
  8,249
  9,805
  11,455
  13,174
  14,932
  16,692
  18,457
  20,195
  21,891
  23,534
  25,118
  26,641
  28,104
  29,512
  30,871
  32,190
  33,478
  34,747
  35,982
  37,160
  38,347
  39,554
  40,791
  42,070
  43,400
Retained Cash Flow (-), $m
  -963
  -2,339
  -3,149
  -4,144
  -5,311
  -6,644
  -8,128
  -9,746
  -11,472
  -13,283
  -15,151
  -17,052
  -18,964
  -20,867
  -22,748
  -24,595
  -26,402
  -28,166
  -29,889
  -31,574
  -33,227
  -34,857
  -36,473
  -38,085
  -39,704
  -41,341
  -43,007
  -44,714
  -46,473
  -48,293
  -50,186
Prev. year cash balance distribution, $m
 
  263
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,696
  252
  233
  206
  169
  121
  59
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  9.50
  9.98
  10.47
  11.00
  11.55
  12.12
  12.73
  13.37
  14.04
  14.74
  15.47
  16.25
  17.06
  17.91
  18.81
  19.75
  20.74
  21.77
  22.86
  24.01
  25.21
  26.47
  27.79
  29.18
  30.64
  32.17
  33.78
  35.47
  37.24
  39.10
PV of cash for distribution, $m
 
  1,549
  208
  173
  135
  98
  61
  26
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.9
  99.7
  99.5
  99.3
  99.0
  98.7
  98.4
  98.1
  97.7
  97.4
  97.0
  96.6
  96.3
  95.9
  95.5
  95.1
  94.7
  94.3
  93.9
  93.4
  93.0
  92.6

Brookfield Infrastructure Partners L.P. engages in utility, transport, energy, and communications infrastructure businesses. The company’s Utilities segment operates a port facility that exports metallurgical and thermal coal mined in the central Bowen Basin region of Queensland, Australia; approximately 11,000 kilometers of transmission lines in North and South America; and approximately 2.6 million electricity and natural gas connections in the United Kingdom and Colombia. Its Transport segment provides transportation, storage, and handling services for freight, bulk commodities, and passengers through a network of 5,100 kilometers of track and related infrastructure in southwest region of Western Australia; approximately 4,800 kilometers of rail in Brazil; approximately 3,500 kilometers of motorways in Brazil and Chile; and 33 port terminals in North America, the United Kingdom, and Europe. The company’s Energy segment offers energy transportation, distribution, and storage services through 15,000 kilometers of transmission pipelines; and 600 billion cubic feet of natural gas storage in the United States and Canada, as well as serves approximately 40,000 gas distribution customers in the United Kingdom. This segment also provides heating, cooling, and energy solutions; and distributed natural gas, water, and sewage services in Australia and North America. Its Communications Infrastructure segment offers services and critical infrastructure to the media broadcasting and telecom sectors. This segment has approximately 7,000 multi-purpose towers and active rooftop sites; and 5,000 kilometers of fiber backbone located in France. Brookfield Infrastructure Partners Limited serves as the general partner of the company. Brookfield Infrastructure Partners L.P. was founded in 2007 and is based in Toronto, Canada.

FINANCIAL RATIOS  of  Brookfield Infrastructure Partners (BIP)

Valuation Ratios
P/E Ratio 27.2
Price to Sales 4.8
Price to Book 2
Price to Tangible Book
Price to Cash Flow 13.5
Price to Free Cash Flow 161.1
Growth Rates
Sales Growth Rate 14%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 32.7%
Cap. Spend. - 3 Yr. Gr. Rate 10.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 155.5%
Total Debt to Equity 166.9%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 2.2%
Return On Equity 8.2%
Return On Equity - 3 Yr. Avg. 6.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 49.7%
Gross Margin - 3 Yr. Avg. 54.3%
EBITDA Margin 64.1%
EBITDA Margin - 3 Yr. Avg. 58.8%
Operating Margin 20.8%
Oper. Margin - 3 Yr. Avg. 26.9%
Pre-Tax Margin 25.7%
Pre-Tax Margin - 3 Yr. Avg. 21%
Net Profit Margin 17.6%
Net Profit Margin - 3 Yr. Avg. 12.6%
Effective Tax Rate 2.8%
Eff/ Tax Rate - 3 Yr. Avg. 8.9%
Payout Ratio 145.8%

BIP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BIP stock intrinsic value calculation we used $2115 million for the last fiscal year's total revenue generated by Brookfield Infrastructure Partners. The default revenue input number comes from 2016 income statement of Brookfield Infrastructure Partners. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BIP stock valuation model: a) initial revenue growth rate of 48.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.5%, whose default value for BIP is calculated based on our internal credit rating of Brookfield Infrastructure Partners, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Brookfield Infrastructure Partners.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BIP stock the variable cost ratio is equal to 70.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BIP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.7% for Brookfield Infrastructure Partners.

Corporate tax rate of 27% is the nominal tax rate for Brookfield Infrastructure Partners. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BIP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BIP are equal to 568.5%.

Life of production assets of 27.6 years is the average useful life of capital assets used in Brookfield Infrastructure Partners operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BIP is equal to -6.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5013 million for Brookfield Infrastructure Partners - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 259.374 million for Brookfield Infrastructure Partners is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Brookfield Infrastructure Partners at the current share price and the inputted number of shares is $10.1 billion.


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Stock chart of BIP Financial statements of BIP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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