Brookfield Infrastructure Partners, a global giant in the infrastructure space, recently released their Q1 2024 earnings transcript. While many analysts focused on the headline figures – an 11% FFO increase and a 6% distribution hike – a deeper look reveals a potential goldmine. Tucked away within the transcript is a hint at a potential internal rate of return (IRR) of 25% on two specific Brazilian utility investments.

The transcript details Brookfield's bold moves during 2015-2017, a period of capital scarcity in Brazil. Brookfield, using their deep knowledge of the Brazilian market, acquired two seemingly undervalued assets: Quantum, a greenfield electricity transmission platform, and NTS, a natural gas pipeline business.

Quantum, with its 5,300 kilometers of transmission lines, was a bet on the future of renewable energy in Brazil. Brookfield cleverly partnered with a Spanish EPC company, mitigating construction risk and ensuring a predictable return. This strategy paid off. In 2022, they sold a portion of Quantum for a 2.4x return on their initial investment. Now, they are ready to monetize the remaining lines, a fully derisked transmission utility poised for future growth.

"NTS, acquired entirely with equity capital due to unfavorable borrowing conditions, presented a more complex challenge. Carving out over 2,000 kilometers of pipelines from the state-owned Petrobras was a significant undertaking. But Brookfield saw an opportunity where others saw risk. They skillfully navigated the regulatory complexities, transitioning NTS to a perpetual regulatory framework, substantially boosting its long-term value."

Today, NTS boasts a 100% contracted, availability-based revenue stream, fully indexed to inflation. The results are impressive: a 13% compound annual growth rate in revenues and substantial dividends. Brookfield is set to achieve a 2.4x return on their initial investment in NTS through a dividend recapitalization, while retaining a 31% stake.

Potential 25% IRR: A Hidden Value Driver

Here's the truly fascinating part: the transcript casually mentions that both Quantum and NTS are expected to deliver IRRs "of over 25%." This is remarkable for an industry where 10%-12% IRRs are considered strong. It suggests that Brookfield's contrarian bets in Brazil have yielded returns far exceeding their initial targets, potentially creating a hidden value driver within their portfolio.

The following chart illustrates potential FFO growth across Brookfield's segments based on trends discussed in the Q1 2024 earnings call. Actual results may vary.

While the transcript does not delve into the calculations behind this 25% IRR, the evidence suggests it is more than just hype. Quantum's partial sale at a 2.4x return and NTS's upcoming dividend recap at a similar multiple point towards strong performance. Both businesses are positioned for continued growth, with Quantum participating in future transmission auctions and NTS benefiting from Brazil's increasing reliance on natural gas.

This potential 25% IRR, barely touched upon in the transcript, highlights a crucial aspect of Brookfield's success: their knack for finding and profiting from undervalued assets in challenging markets. It speaks to their operational expertise, strategic partnerships, and disciplined capital allocation.

"Fun Fact: Brookfield Infrastructure Partners has increased its distribution for 15 consecutive years, showcasing their consistent performance and dedication to shareholder returns."

For investors, this raises a question: Could there be other hidden gems within Brookfield's diverse global portfolio? Could their recent data center acquisitions, made during another period of capital constraint, yield similarly impressive results?

The Q1 2024 earnings transcript offers more than just surface-level numbers; it provides a glimpse into Brookfield's potential to generate exceptional returns. The 25% IRR, while needing more detail, is a compelling clue. It hints that Brookfield, through their contrarian strategies and global presence, could be sitting on a treasure trove of untapped value.