Intrinsic value of Brookfield Infrastructure Partners - BIP

Previous Close

$44.20

  Intrinsic Value

$67.64

stock screener

  Rating & Target

str. buy

+53%

  Value-price divergence*

-52%

Previous close

$44.20

 
Intrinsic value

$67.64

 
Up/down potential

+53%

 
Rating

str. buy

 
Value-price divergence*

-52%

*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 10.6

 

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
  44.50
  40.55
  37.00
  33.80
  30.92
  28.32
  25.99
  23.89
  22.00
  20.30
  18.77
  17.40
  16.16
  15.04
  14.04
  13.13
  12.32
  11.59
  10.93
  10.34
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
Revenue, $m
  2,115
  3,056
  4,295
  5,885
  7,873
  10,307
  13,227
  16,665
  20,646
  25,189
  30,304
  35,992
  42,254
  49,080
  56,462
  64,387
  72,843
  81,817
  91,297
  101,275
  111,742
  122,696
  134,133
  146,057
  158,474
  171,390
  184,820
  198,778
  213,283
  228,356
  244,022
Variable operating expenses, $m
 
  2,129
  2,972
  4,053
  5,406
  7,062
  9,048
  11,387
  14,095
  17,186
  20,665
  24,484
  28,744
  33,387
  38,409
  43,800
  49,552
  55,657
  62,106
  68,894
  76,014
  83,465
  91,246
  99,358
  107,804
  116,591
  125,727
  135,222
  145,089
  155,342
  166,000
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
  2,129
  2,972
  4,053
  5,406
  7,062
  9,048
  11,387
  14,095
  17,186
  20,665
  24,484
  28,744
  33,387
  38,409
  43,800
  49,552
  55,657
  62,106
  68,894
  76,014
  83,465
  91,246
  99,358
  107,804
  116,591
  125,727
  135,222
  145,089
  155,342
  166,000
Operating income, $m
  439
  927
  1,323
  1,831
  2,467
  3,245
  4,179
  5,278
  6,551
  8,004
  9,639
  11,508
  13,510
  15,693
  18,053
  20,587
  23,290
  26,160
  29,191
  32,381
  35,728
  39,230
  42,887
  46,700
  50,670
  54,800
  59,093
  63,556
  68,194
  73,013
  78,022
EBITDA, $m
  886
  1,607
  2,258
  3,094
  4,139
  5,419
  6,954
  8,761
  10,854
  13,242
  15,931
  18,922
  22,213
  25,802
  29,683
  33,849
  38,294
  43,012
  47,996
  53,241
  58,744
  64,503
  70,516
  76,784
  83,312
  90,102
  97,162
  104,500
  112,126
  120,050
  128,286
Interest expense (income), $m
  366
  366
  700
  1,134
  1,691
  2,388
  3,241
  4,264
  5,469
  6,864
  8,456
  10,249
  12,242
  14,437
  16,829
  19,416
  22,193
  25,156
  28,301
  31,624
  35,120
  38,789
  42,627
  46,635
  50,814
  55,165
  59,692
  64,399
  69,290
  74,373
  79,655
Earnings before tax, $m
  543
  561
  623
  697
  776
  857
  938
  1,014
  1,082
  1,139
  1,182
  1,259
  1,268
  1,256
  1,224
  1,171
  1,097
  1,003
  890
  757
  608
  441
  260
  64
  -145
  -366
  -599
  -842
  -1,096
  -1,360
  -1,633
Tax expense, $m
  15
  151
  168
  188
  210
  231
  253
  274
  292
  308
  319
  340
  342
  339
  330
  316
  296
  271
  240
  204
  164
  119
  70
  17
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  373
  409
  455
  509
  566
  626
  685
  740
  790
  832
  863
  919
  925
  917
  894
  855
  801
  732
  649
  553
  444
  322
  190
  47
  -145
  -366
  -599
  -842
  -1,096
  -1,360
  -1,633

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
  29,672
  41,703
  57,132
  76,440
  100,072
  128,416
  161,794
  200,451
  244,557
  294,210
  349,441
  410,228
  476,505
  548,173
  625,116
  707,211
  794,335
  886,379
  983,249
  1,084,876
  1,191,218
  1,302,264
  1,418,034
  1,538,579
  1,663,985
  1,794,370
  1,929,883
  2,070,705
  2,217,046
  2,369,146
Adjusted assets (=assets-cash), $m
  20,438
  29,672
  41,703
  57,132
  76,440
  100,072
  128,416
  161,794
  200,451
  244,557
  294,210
  349,441
  410,228
  476,505
  548,173
  625,116
  707,211
  794,335
  886,379
  983,249
  1,084,876
  1,191,218
  1,302,264
  1,418,034
  1,538,579
  1,663,985
  1,794,370
  1,929,883
  2,070,705
  2,217,046
  2,369,146
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
  17,374
  24,420
  33,454
  44,760
  58,597
  75,195
  94,739
  117,375
  143,202
  172,276
  204,617
  240,211
  279,020
  320,985
  366,040
  414,111
  465,127
  519,023
  575,746
  635,255
  697,524
  762,547
  830,337
  900,923
  974,355
  1,050,702
  1,130,053
  1,212,511
  1,298,202
  1,387,266
Working capital, $m
  117
  -211
  -296
  -406
  -543
  -711
  -913
  -1,150
  -1,425
  -1,738
  -2,091
  -2,483
  -2,915
  -3,387
  -3,896
  -4,443
  -5,026
  -5,645
  -6,299
  -6,988
  -7,710
  -8,466
  -9,255
  -10,078
  -10,935
  -11,826
  -12,753
  -13,716
  -14,716
  -15,757
  -16,838
Total debt, $m
  8,367
  14,893
  24,133
  35,982
  50,811
  68,960
  90,729
  116,363
  146,051
  179,925
  218,058
  260,476
  307,160
  358,061
  413,102
  472,194
  535,243
  602,154
  672,844
  747,240
  825,290
  906,961
  992,244
  1,081,155
  1,173,734
  1,270,045
  1,370,181
  1,474,255
  1,582,406
  1,694,796
  1,811,609
Total liabilities, $m
  16,262
  22,788
  32,028
  43,877
  58,706
  76,855
  98,624
  124,258
  153,946
  187,820
  225,953
  268,371
  315,055
  365,956
  420,997
  480,089
  543,138
  610,049
  680,739
  755,135
  833,185
  914,856
  1,000,139
  1,089,050
  1,181,629
  1,277,940
  1,378,076
  1,482,150
  1,590,301
  1,702,691
  1,819,504
Total equity, $m
  5,013
  6,884
  9,675
  13,255
  17,734
  23,217
  29,793
  37,536
  46,505
  56,737
  68,257
  81,070
  95,173
  110,549
  127,176
  145,027
  164,073
  184,286
  205,640
  228,114
  251,691
  276,363
  302,125
  328,984
  356,950
  386,044
  416,294
  447,733
  480,403
  514,355
  549,642
Total liabilities and equity, $m
  21,275
  29,672
  41,703
  57,132
  76,440
  100,072
  128,417
  161,794
  200,451
  244,557
  294,210
  349,441
  410,228
  476,505
  548,173
  625,116
  707,211
  794,335
  886,379
  983,249
  1,084,876
  1,191,219
  1,302,264
  1,418,034
  1,538,579
  1,663,984
  1,794,370
  1,929,883
  2,070,704
  2,217,046
  2,369,146
Debt-to-equity ratio
  1.669
  2.160
  2.490
  2.710
  2.870
  2.970
  3.050
  3.100
  3.140
  3.170
  3.190
  3.210
  3.230
  3.240
  3.250
  3.260
  3.260
  3.270
  3.270
  3.280
  3.280
  3.280
  3.280
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
  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
  409
  455
  509
  566
  626
  685
  740
  790
  832
  863
  919
  925
  917
  894
  855
  801
  732
  649
  553
  444
  322
  190
  47
  -145
  -366
  -599
  -842
  -1,096
  -1,360
  -1,633
Depreciation, amort., depletion, $m
  447
  680
  935
  1,262
  1,672
  2,173
  2,775
  3,483
  4,303
  5,239
  6,292
  7,414
  8,703
  10,109
  11,630
  13,262
  15,004
  16,852
  18,805
  20,860
  23,016
  25,273
  27,629
  30,085
  32,642
  35,303
  38,069
  40,944
  43,932
  47,036
  50,263
Funds from operations, $m
  798
  1,089
  1,390
  1,771
  2,238
  2,799
  3,459
  4,223
  5,093
  6,070
  7,155
  8,333
  9,629
  11,026
  12,523
  14,117
  15,805
  17,585
  19,455
  21,413
  23,460
  25,595
  27,818
  30,132
  32,497
  34,937
  37,470
  40,102
  42,836
  45,677
  48,630
Change in working capital, $m
  45
  -65
  -86
  -110
  -137
  -168
  -201
  -237
  -275
  -313
  -353
  -393
  -432
  -471
  -509
  -547
  -583
  -619
  -654
  -688
  -722
  -756
  -789
  -823
  -857
  -891
  -927
  -963
  -1,001
  -1,040
  -1,081
Cash from operations, $m
  753
  1,154
  1,475
  1,881
  2,376
  2,967
  3,661
  4,460
  5,368
  6,384
  7,508
  8,725
  10,061
  11,497
  13,033
  14,664
  16,388
  18,204
  20,109
  22,102
  24,182
  26,351
  28,608
  30,954
  33,354
  35,828
  38,397
  41,065
  43,836
  46,717
  49,711
Maintenance CAPEX, $m
  0
  -436
  -630
  -885
  -1,212
  -1,622
  -2,123
  -2,724
  -3,433
  -4,253
  -5,188
  -6,242
  -7,414
  -8,703
  -10,109
  -11,630
  -13,262
  -15,004
  -16,852
  -18,805
  -20,860
  -23,016
  -25,273
  -27,629
  -30,085
  -32,642
  -35,303
  -38,069
  -40,944
  -43,932
  -47,036
New CAPEX, $m
  -690
  -5,350
  -7,045
  -9,034
  -11,306
  -13,838
  -16,597
  -19,545
  -22,636
  -25,827
  -29,074
  -32,341
  -35,594
  -38,808
  -41,966
  -45,055
  -48,071
  -51,016
  -53,897
  -56,723
  -59,508
  -62,269
  -65,024
  -67,789
  -70,586
  -73,432
  -76,347
  -79,350
  -82,459
  -85,691
  -89,063
Cash from investing activities, $m
  -1,058
  -5,786
  -7,675
  -9,919
  -12,518
  -15,460
  -18,720
  -22,269
  -26,069
  -30,080
  -34,262
  -38,583
  -43,008
  -47,511
  -52,075
  -56,685
  -61,333
  -66,020
  -70,749
  -75,528
  -80,368
  -85,285
  -90,297
  -95,418
  -100,671
  -106,074
  -111,650
  -117,419
  -123,403
  -129,623
  -136,099
Free cash flow, $m
  -305
  -4,632
  -6,199
  -8,038
  -10,142
  -12,492
  -15,060
  -17,809
  -20,701
  -23,695
  -26,755
  -29,857
  -32,947
  -36,014
  -39,042
  -42,020
  -44,945
  -47,816
  -50,640
  -53,426
  -56,186
  -58,935
  -61,689
  -64,463
  -67,316
  -70,246
  -73,253
  -76,354
  -79,567
  -82,906
  -86,388
Issuance/(repayment) of debt, $m
  770
  7,100
  9,240
  11,849
  14,828
  18,149
  21,769
  25,634
  29,689
  33,874
  38,133
  42,418
  46,685
  50,900
  55,041
  59,093
  63,049
  66,911
  70,689
  74,396
  78,050
  81,671
  85,283
  88,911
  92,579
  96,312
  100,136
  104,074
  108,151
  112,390
  116,813
Issuance/(repurchase) of shares, $m
  180
  1,725
  2,336
  3,071
  3,913
  4,857
  5,891
  7,004
  8,178
  9,401
  10,656
  11,894
  13,177
  14,459
  15,733
  16,996
  18,245
  19,481
  20,705
  21,921
  23,134
  24,349
  25,573
  26,812
  28,111
  29,460
  30,848
  32,281
  33,767
  35,311
  36,920
Cash from financing (excl. dividends), $m  
  1,443
  8,825
  11,576
  14,920
  18,741
  23,006
  27,660
  32,638
  37,867
  43,275
  48,789
  54,312
  59,862
  65,359
  70,774
  76,089
  81,294
  86,392
  91,394
  96,317
  101,184
  106,020
  110,856
  115,723
  120,690
  125,772
  130,984
  136,355
  141,918
  147,701
  153,733
Total cash flow (excl. dividends), $m
  1,131
  4,193
  5,378
  6,881
  8,599
  10,514
  12,600
  14,829
  17,166
  19,579
  22,035
  24,455
  26,915
  29,345
  31,732
  34,068
  36,349
  38,576
  40,754
  42,891
  44,997
  47,085
  49,168
  51,259
  53,373
  55,526
  57,730
  60,001
  62,351
  64,795
  67,345
Retained Cash Flow (-), $m
  -963
  -2,134
  -2,791
  -3,579
  -4,479
  -5,483
  -6,576
  -7,744
  -8,968
  -10,233
  -11,519
  -12,814
  -14,103
  -15,376
  -16,627
  -17,851
  -19,046
  -20,213
  -21,354
  -22,474
  -23,578
  -24,671
  -25,763
  -26,858
  -28,111
  -29,460
  -30,848
  -32,281
  -33,767
  -35,311
  -36,920
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
 
  2,322
  2,586
  3,302
  4,120
  5,031
  6,024
  7,085
  8,198
  9,346
  10,515
  11,641
  12,812
  13,969
  15,105
  16,217
  17,303
  18,363
  19,400
  20,417
  21,420
  22,414
  23,405
  24,400
  25,262
  26,066
  26,882
  27,720
  28,585
  29,484
  30,425
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
 
  2,120
  2,138
  2,449
  2,714
  2,913
  3,032
  3,062
  3,005
  2,866
  2,659
  2,391
  2,104
  1,802
  1,504
  1,222
  968
  746
  560
  408
  290
  200
  134
  87
  54
  33
  19
  11
  6
  3
  2
Current shareholders' claim on cash, %
  100
  85.4
  73.6
  64.0
  56.1
  49.7
  44.4
  39.9
  36.2
  33.1
  30.4
  28.1
  26.0
  24.3
  22.8
  21.4
  20.2
  19.1
  18.2
  17.3
  16.5
  15.8
  15.1
  14.5
  14.0
  13.4
  12.9
  12.5
  12.1
  11.7
  11.3

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 30.7
Price to Sales 5.4
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 15.2
Price to Free Cash Flow 182
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 44.5% 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 240 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 $10.6 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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