This year hasn't turned out to be as good as many companies initially expected. That's certainly the case for Brookfield Infrastructure (NYSE:BIP)(NYSE:BIPC), which experienced a trio of headwinds that will hold back its results this year.
However, it anticipates that those headwinds will fade next year. On top of that, the company expects to benefit from its growth-related investments. Add up those two tailwinds, and Brookfield believes next year will be a huge one for the company, which should continue well beyond next year.
Resilience amid the storm
While the first half of this year was quite turbulent, most of Brookfield's businesses performed well. The company's utilities, energy, and data infrastructure businesses combined to generate $585 million in funds from operations (FFO) during the first half of the year, which was an impressive $45 million above their results during the same period of 2019. While they experienced headwinds from foreign exchange fluctuations and government-mandated shutdowns, they more than offset those issues thanks to the benefits of organic growth and its asset recycling program of selling mature businesses and replacing them with higher returning opportunities.
Meanwhile, the company's transport segment, which comprises the other 30% of its FFO, was a bit harder hit by the pandemic. Volumes at its ports and toll roads decline due to government-mandated shutdowns, though it has clauses in its contracts to recover the losses at its toll roads. Overall, economic shutdowns will impact the company's FFO by about 3% this year.
Aside from foreign exchange and economic shutdowns, the third issue affecting Brookfield's growth this year was a delay in closing its Indian telecom tower acquisition. The company initially agreed to acquire a stake in that company last December but didn't close the transaction until August, so it won't experience the full benefit of that deal until next year.
Getting it all back, and then some
Even with the turbulence in its transportation segment, Brookfield believes its 2020 results will increase over last year. That's because it expects organic growth projects to offset most of the headwinds from foreign exchange fluctuations -- mainly the Brazilian real, which plunged 25% -- and shutdown-related volume declines.
Meanwhile, the company anticipates that those headwinds will completely fade next year as it expects the Brazilian real to recover and volumes to return to their pre-pandemic levels. On top of that, it will benefit from a full-year of the Indian telecom business. That trio alone is likely to boost its FFO by more than 15%.
Brookfield also expects to benefit from organic growth investments and additional acquisitions next year. The company recently secured one new opportunity by joining its parent, Brookfield Asset Management (NYSE:BAM), to acquire a stake in U.S. LNG export terminal operator Cheniere Energy Partners (NYSEMKT:CQP). Brookfield Infrastructure plans to invest $425 million into the deal, which will help bolster its results next year, assuming it closes. It probably won't be the company's only transaction since it expects to invest more than $2 billion annually on growth-related investments over the next three to five years, with plans to increase its allocation to the fast-growing data infrastructure segment.
Brookfield should also benefit from continued organic expansion across its business units. Driving that growth will be a combination of contractual rate increases, volume expansion, and capital projects. In its view, organic growth should boost its bottom line between 6% and 9% per year.
That upward trend should continue well beyond 2021. Brookfield believes that its capital recycling program should add 1% to 5% to its FFO each year. Meanwhile, as noted, it believes organic expansion should power 6% to 9% annual growth.
Bullish about what lies ahead
While 2020 didn't exactly go as Brookfield initially anticipated, it's far from the only company to have its lofty expectations shattered by COVID-19. However, thanks to its business model's overall durability, it should be able to make back all its losses next year. Add that to the growth it expects from new investments, and next year could be a big one for the company. Meanwhile, it sees even more growth ahead as it continues to benefit from its dual growth strategy powered by organic expansions and its capital recycling program. Add in its 4.1%-yielding dividend, and Brookfield Infrastructure appears poised to generate big-time total returns in the coming years.