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Brookfield Infrastructure Partners L.P.'s Bold Brazilian Bet Pays Off in the Second Quarter

By Matthew DiLallo - Aug 3, 2017 at 12:08PM

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The global infrastructure owner has an expanding backlog of projects and acquisitions opportunities that should help it continue growing over the coming years.

Brookfield Infrastructure Partners (BIP -0.96%) closed its acquisition of a stake in Petrobras' (PBR 0.65%) natural gas transmission business in Brazil during the second quarter. That deal, when combined with strong organic growth, drove earnings higher. Meanwhile, the company continues to expand its capital project backlog, and it has several acquisitions in the pipeline that position it to continue growing at a healthy rate.

Brookfield Infrastructure Partners results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Funds from operations (FFO)

$295 million

$230 million

28.3%

FFO per unit

$0.80

$0.67

19.4%

Data source: Brookfield Infrastructure Partners.

Sunset through the twists of a pipeline system.

Image source: Getty Images.

What happened with Brookfield Infrastructure Partners this quarter? 

The Petrobras deal helped fuel results this quarter:

  • The utilities segment generated $168 million of FFO, which was up 68% versus the year-ago quarter. The start-up of several growth projects over the past year as well as the acquisition of a stake in Petrobras' natural gas transmission business helped drive the increase. These new additions more than offset a reduction in the allowed return of its regulated terminal in Australia due to a regulatory reset and the impact of the sale of its Canadian electricity transmission business.
  • The transportation segment's FFO was up 31% year over year to $134 million. Driving the increase were 12% organic growth and contributions from new toll roads and port operations acquired over the past year. These factors more than offset lower earnings from its rail businesses.
  • FFO in the energy segment was flat at $43 million during the quarter. On the plus side, the company's North American natural gas transmission business, which it co-owns with pipeline giant Kinder Morgan (KMI 2.04%), benefited from higher volumes, new contracts, and reduced leverage. Meanwhile, the energy segment also benefited from the contributions of a North American natural gas storage business that it acquired last year. However, the sale of its Channel Islands distribution business entirely offset these positives.
  • Finally, the communications segment continued to generate steady FFO, which, at $19 million, was the same as last year. However, this business secured two expansion opportunities during the quarter that should boost earnings in the future. 

What management had to say 

CEO Sam Pollock commented on the second-quarter results and what's up ahead, stating:

2017 is shaping up to be another strong year for our business, with FFO per unit up 12% year-to-date. With a significant committed backlog of organic growth projects that currently stands at $2.4 billion, and a robust pipeline of projects under consideration, we have good visibility on growth for the remainder of the year and beyond.

While Brookfield Infrastructure has a knack for making needle-moving acquisitions, organic growth is becoming an important driver for the company. As Pollock mentioned, it has $2.4 billion of projects under way that should drive growth during the next few years. Meanwhile, the company is pursuing another $1.5 billion to $2 billion of projects that it could add to the backlog over the next six to 12 months. The company's natural gas pipeline joint venture with Kinder Morgan is one of the many businesses with ample organic growth upside. For example, the partners are currently investing more than $200 million to expand the southern section, which should enter service by early next year. Meanwhile, Brookfield noted that it has another $300 million of potential projects in this business that it could sanction over the next year.

Looking forward 

Even with that growing backlog of organic growth projects, Brookfield continues to pursue acquisitions. The company currently has a $200 million deal in place to acquire a stake in a portfolio of communications towers in India that it expects to close by year-end. Meanwhile, it has a small, $15 million deal to buy a water utility in Peru. That water deal is worth noting because one of the company's top priorities is to grow its presence in the water infrastructure segment, which is why it's currently pursuing several opportunities that it believes will enable it to build a large-scale water business over the next few years. These growth initiatives keep the company on pace to, at a minimum grow, its distribution to investors by 5% to 9% annually over the long term.

Matt DiLallo owns shares of Brookfield Infrastructure Partners and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
BIP
$40.37 (-0.96%) $0.39
Petroleo Brasileiro S.A. - Petrobras Stock Quote
Petroleo Brasileiro S.A. - Petrobras
PBR
$15.44 (0.65%) $0.10
Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
KMI
$18.04 (2.04%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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