Brookfield Infrastructure Partners (NYSE:BIP) has been having an outstanding year. The infrastructure company has been sizzling, generating a total return of more than 50%, which has blown past the red-hot S&P 500's nearly 25% total return. Powering the company's big gains has been the impact of several recently completed acquisitions.
Those deals should have fueled continued growth during the third quarter, which is one of a few things investors should keep an eye on when the company reports those results later this week.
See if the acceleration in earnings continued
Brookfield's cash flow rose 13% per share during the second quarter, powered by both acquisitions and organic expansions. The big driver was a 78% year-over-year increase in earnings from its energy-related businesses. The main fuel sources were the $1.2 billion worth of acquisitions the company has completed over the past year, including its investments in a North American residential infrastructure business, a Canadian midstream operation, and a natural gas pipeline in India.
Those deals should have continued to fuel growth during the third quarter. The company should also have benefited from the initial contributions of two other transactions that should have closed during the quarter. Brookfield expected to close not only the second phase of its Canadian midstream deal, but also the acquisition of a data distribution business in New Zealand. Ideally, both those deals closed on time, enabling the company to deliver accelerated growth in the third quarter.
If that's not what happened, investors should see if those deals will close by year-end. Brookfield had expected that its year-end earnings run rate will be 20% above its level when it sold a Chilean electricity-transmission business last year, and the new deals are crucial to it achieving that goal.
Check whether it's still on track with its other deals
Brookfield had several more acquisitions in the pipeline at the end of the second quarter that "should set the stage for further growth in our results heading into 2020," according to CEO Sam Pollock in the second-quarter earnings release. The biggest was its participation in a deal to take railroad operator Genesee & Wyoming private; Brookfield intends to invest $500 million into that deal, which it expects to close in the fourth quarter. The company also plans to invest $150 million into a North American gas pipeline, which should close during the fourth quarter. Finally, it expects to invest $400 million into an Indian telecom-tower business.
The hope is that the company remains on track to close each deal, so it can continue growing at a fast pace in 2020.
Look to see if it signed any more transactions
In Brookfield's second-quarter letter to investors, Pollock wrote: "The pace of new investment activity this year has surpassed our expectations, and we anticipate this momentum to continue in the foreseeable future ... We are currently monitoring a number of very interesting situations in the energy and data segments in North America and Europe, where we expect to bring to bear our competitive advantages of size, operating capabilities, and access to capital."
Given those comments, investors should see whether the company has signed any more deals. That seems likely, especially since its parent Brookfield Asset Management (NYSE:BAM) recently agreed to invest $2 billion for a 25% interest in an LNG (liquefied natural gas) export facility through one of its infrastructure funds. Investors should see if Brookfield Infrastructure Partners is participating in that deal, and whether it secured any other transactions.
In addition to buying assets, Brookfield Infrastructure has also been selling some of its mature businesses to help pay for new acquisitions. At the end of the second quarter it had four sales processes underway, which it estimated would generate $700 million in cash over the next six months. Given that target, investors should see if the company has agreements in place to achieve it. Doing so will give it the funds to make more needle-moving acquisitions in the coming year.
Expect continued progress with its strategic plan
Brookfield is in the middle of a multiphase asset rotation strategy, which includes selling mature businesses so that it can buy faster-growing ones. Phase one of that plan paid big dividends during the second quarter, which should have carried over during Q3.
Ideally, it will have also made more progress with phase two, which would help power faster-paced growth in 2020. Doing so increases the probability that Brookfield can grow its dividend toward the high end of its 5% to 9% annual target.