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Why Units of Brookfield Infrastructure Slumped Nearly 29% in March

By Matthew DiLallo - Apr 3, 2020 at 12:06PM

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Fears of a recession were one of several factors weighing on the global infrastructure giant.

What happened

Units of Brookfield Infrastructure Partners (BIP -1.25%) plunged 28.8% in March, according to data provided by S&P Global Market Intelligence. The main issue weighing on the company was fears of a global recession.  

So what

The COVID-19 outbreak is forcing governments around the world to shut down their economies to slow the spread of the pandemic and its impact on their healthcare systems. That's causing fewer vehicles to move through toll roads and fewer ships traveling to ports, which will have some effect on Brookfield Infrastructure's transportation segment.

However, the company previously estimated that a global recession would only affect its cash flow by about 5% thanks to the strength of its contract profile and the critical nature of its infrastructure. 

Three red arrows crashing into the ground

Image source: Getty Images.

In addition to the economic effect, another issue that weighed on Brookfield last month was that it lost out on the bidding for data infrastructure company Cincinnati Bell (CBB). While the company raised its offer several times, it ended up walking away. On one hand, this will affect the company's growth as the deal would have boosted its bottom line later this year.

However, Cincinnati Bell paid Brookfield and its partners a $24.8 million breakup fee. Add that cash payment to the money Brookfield would have invested in the deal, and it has even more liquidity to take advantage of what could turn out to be an attractive time to make acquisitions. 

Now what

While Brookfield sold off last month, it could end up coming out ahead. That's because it has entered this period with a strong balance sheet and lots of liquidity that it could use to make deals should sellers start to feel financially stressed. Because of that, last month's sell-off looks like a potentially excellent buying opportunity for investors with some spare cash and a long-term mindset.

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Stocks Mentioned

Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$37.19 (-1.25%) $0.47
Cincinnati Bell Inc. Stock Quote
Cincinnati Bell Inc.

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