Data-Driven Growth Powers Brookfield Infrastructure's Results in Q3

Brookfield Infrastructure (BIP -1.33%) (BIPC -0.47%) demonstrated its business model's durability once again during the third quarter as it delivered solid results despite the economic disruption caused by the COVID-19 outbreak. While most of its business units performed well, its focus on expanding its data infrastructure platform paid dividends during the period. That trend should continue as the company closed another data deal -- along with one in the energy sector -- which, when combined with easing economic and foreign exchange headwinds, should help drive its results meaningfully higher over the next several quarters.

A look at Brookfield Infrastructure's third-quarter results

Data source: Brookfield Infrastructure. 

Brookfield's earnings more than recovered during the third quarter as the diversity of its operations helped offset some foreign exchange headwinds: 

Data source: Brookfield Infrastructure. Chart by the author.

Earnings from its utility-like assets declined 4.1% during the quarter. However, that was entirely due to the impact of exchange rate fluctuations. Utility earnings would have increased 6% year over year on a constant currency basis due to inflation-related rate adjustments, $300 million of recently completed expansion projects, and the acquisition of a regulated transmission business in North America late last year.

Transportation earnings improved by 5.5% despite some continued weakness in volumes due to economic shutdowns. The company offset that softness with higher rates at its U.K. port operations, higher agricultural volumes across its rail networks, and the addition of a rail operation in North America that it acquired last year.

FFO from the energy segment surged 15%. The company benefited from its midstream assets, which grew earnings despite the turbulent conditions in the energy market thanks to in-place capacity contracts.  

Earnings in the company's data segment soared 40% year over year, powered by several acquisitions over the past year. The company benefited from its investments in data distribution businesses in the U.K. and New Zealand as well as a partial contribution of a portfolio of telecom towers in India that it acquired during the quarter.

Image source: Getty Images.

A look at what's ahead for Brookfield Infrastructure

Brookfield's solid showing during the third quarter has it on track to grow its full-year FFO per share despite the weakness last quarter due to COVID-19. Helping fuel that growth will be two acquisitions the company closed during the quarter.

In August, the company and its partners invested $3.4 billion (BIP's share is about $600 million) to acquire a portfolio of 135,000 telecom towers in India. The company signed a 30-year contract with the mobile carrier selling the portfolio, which will lock in this investment's cash flows. Meanwhile, the company expects to expand the portfolio up to 175,000 towers in the near term, which will provide meaningful organic growth.

In September, Brookfield and its partners purchased a stake in Cheniere Energy Partners (CQP 0.54%) for $1.5 billion (Brookfield's share is about $425 million). That company owns an LNG export terminal in Louisiana that generates 85% of its revenue from long-term, fixed-rate contracts. Thus, this investment should supply Brookfield with very stable cash flow.

Those two transactions give Brookfield lots of momentum heading into 2021. When combined with additional expansion projects, higher contracted rates, and the expected improvement in the economy and foreign exchange rates, "2021 is shaping up to be a strong year for our business," according to CEO Sam Pollock. 

Brookfield ended the quarter with $3.6 billion of liquidity, -- cash and borrowing capacity -- giving it lots of financial flexibility to invest in expansion projects and make more acquisitions. The company plans to enhance its finances by completing more several asset sales, which could generate nearly $1.5 billion of additional financial flexibility by the middle of next year. That will give it even more funding to complete acquisitions. The company expects to invest about $2 billion per year on new investments, which it believes could add a net 1% to 5% to its FFO per share after accounting for the impact of asset sales. That would enhance its already strong organic growth forecast where it envisions FFO per share expanding at a 6% to 9% annual pace.

About to step on the gas

Brookfield Infrastructure's business model has proven its resiliency this year as the contractual nature of most of its businesses enabled it to generate reasonably stable cash flow amid the economic storm. With the economic headwinds fading and several deals over the finish line, the company expects to hit the accelerator next year. It hopes to maintain that faster pace by pushing forward with its capital recycling program to sell mature businesses and replace them with more upside, which could further bolster its bottom line.