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Brookfield Infrastructure Partners' Earnings Jump as Its Deals Deliver Results

By Matthew DiLallo - Nov 7, 2019 at 11:26AM

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The global infrastructure company’s third-quarter results show that its strategy is paying dividends.

Brookfield Infrastructure Partners ( BIP 1.07% ) has made a series of merger-and-acquisition transactions over the past several months aimed at accelerating its growth rate. The success of that strategy was on full display during the third quarter as the company's cash flow jumped more than 20%. Meanwhile, it continued to make progress on the next phase of its program, which sets it up to continue growing cash flow at an accelerated pace in 2020.

Digging into Brookfield Infrastructure Partners' third-quarter results

Metric

Q3 2019

Q3 2018

Change

Funds from operations

$338 million

$278 million

21.6%

FFO per unit

$0.82

$0.71

15.5%

Data source: Brookfield Infrastructure Partners.

As expected, Brookfield Infrastructure's cash flow surged during the third quarter. That's due to a combination of organic growth and acquisitions across its four business units:

Brookfield Infrastructure Partners' FFO by segment in the third quarter of 2018 and 2019.

Data source: Brookfield Infrastructure. Chart by the author.

The biggest jump came from the data infrastructure segment, where FFO nearly doubled versus the year-ago period. Powering that surge were its investments to build out a global data center business as well as acquiring a stake in a data distribution business in New Zealand. The company's legacy French telecommunications business, meanwhile, organically grew its FFO by 5%, driven by its investments in building new towers to suit the needs of its customers.

Its energy-related businesses also delivered strong growth in the quarter as FFO leaped 70% year over year. Fueling that increase was the acquisition of a North American residential infrastructure business, Canadian midstream operation, and gas pipeline in India. This segment also benefited from new customer contracts and expansion projects on its U.S. gas transmission business.

The utilities segment, meanwhile, grew its earnings by 11.5% year over year. The company's businesses in this unit organically grew their FFO by 9% over the past year, powered in part by the completion of $300 million of expansion projects.

Finally, earnings in Brookfield's transportation segment rose about 8% versus the year-ago period. The main driver was volume growth in its ports and toll roads, which got a further benefit from higher rates. Those positives more than offset the sale of a 33% interest in its Chilean toll road and its European port operation.

The hallway of a data center.

Image source: Getty Images.

A look at what's ahead for Brookfield Infrastructure Partners

Brookfield recently closed the acquisitions of a North American gas pipeline business and the New Zealand data distribution business, investing $140 million and $200 million, respectively. These two new additions should help boost its fourth-quarter results. It also expects to invest another $1.1 billion into several businesses over the next few months, highlighted by two marquee deals.

The largest one is a $500 million investment in a transaction to take railroad operator Genesee & Wyoming private. The company and its partners anticipate that this deal will close during the fourth quarter. The other major one is the acquisition of a large-scale portfolio of telecom towers in India. Brookfield expects to invest up to $400 million in the transaction, which should close sometime in the next few months.

Additionally, it continues to pursue the sale of mature assets to help pay for its new investments. It currently has three deals in place that should bring in a combined $550 million. These sales include its Colombian regulated distribution operations, Australian district energy and distribution business, and another 33% interest in its Chilean toll road business. Those sales will bring its year-to-date total to nearly $1.1 billion. In the meantime, the company sees the potential to sell another $1 billion in assets over the next year, putting it on track to achieve the high end of its $1.5 billion-$2 billion target range.

Those sales will give it the financial flexibility to continue pursuing acquisitions, with the company noting in its letter to investors that it's "pursuing a robust pipeline of new opportunities, which could lead to another year of outsized investments" in 2020. Add that to the continued benefit from this year's deals and the expectation that it will organically grow earnings within its legacy operations near the top end of its 6%-9% target range, and 2020 appears as if it will be another strong year for Brookfield Infrastructure.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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