Brookfield Infrastructure (BIP +2.34%)(BIPC +0.00%) is coming off a solid showing in 2020. Despite significant headwinds from the COVID-19 outbreak, the global infrastructure operator grew its funds from operations (FFO) by 5.1% overall and 2.3% on a per-share basis. That growth amid such a turbulent year demonstrates its infrastructure portfolio's resilience.
While 2020 was a solid year, Brookfield believes 2021 will be significantly better. Two catalysts drive its optimistic view, which CEO Sam Pollock detailed on the fourth-quarter conference call.
Image source: Getty Images.
Headwinds shift into tailwinds
Brookfield grew its FFO last year despite several pandemic-related issues. For example, foreign exchange fluctuations caused the Brazilian real to lose value, reducing the company's FFO by $100 million last year. On top of that, government-mandated shutdowns affected its transportation businesses as volumes across its ports and toll roads declined. Meanwhile, lower oil prices affected some of its more commodity-price sensitive midstream assets.
However, Pollock stated on the call that "we have entered 2021 with a great deal of optimism, guided by a fairly positive backdrop anchored around historically low interest rates and a global rollout of several COVID-19 vaccines that are currently under way." He believes that this "should result in a gradual reopening of economies around the world during the first half of the year," He added, "This backdrop bodes well for the global economy, and more specifically, for our GDP-sensitive assets."
Pollock also noted:
Our ports, toll roads, and rail businesses have proven their resilience, and we anticipate they will outperform during a period of return to normalcy and an anticipated period of economic expansion. Additionally, our midstream businesses performed well in 2020 due to their contracted nature. However, increased economic activity should lead to even higher market-sensitive revenues, which had historically comprised approximately 15% to 20% of our revenues.
As Pollock points out, Brookfield's infrastructure businesses are relatively resilient to changes in the global economy caused by the contract structures backing most of its assets, which is why it delivered solid results last year. However, besides that downside protection, many of its businesses have embedded upside to economic growth. As a result, these operations should benefit as the global economy recovers in 2021.
Image source: Getty Images.
Looking to add new fuel sources
Another major growth driver for Brookfield is the ability to make needle-moving investments. The company invested $1 billion toward the end of last year to buy a portfolio of telecom towers in India and a stake in a large U.S. LNG export operation. Those deals should continue paying dividends in 2021.
The company believes it can capture similar opportunities to further move the needle in 2021. Pollock stated:
The key priority heading into 2021 is to convert our substantial pipeline of attractive opportunities into investments. ... [W]e believe we're entering an infrastructure super-cycle where the investable universe of opportunities will grow materially, and our access to low-cost capital will remain strong. We continue to target to deploy over $2 billion in 2021, and furthermore, the contribution from new investments is expected to be enhanced by our capital recycling program, which is on track to deliver $2 billion of proceeds, a record for us in any year.
Pollock noted that Brookfield believes it can make additional investments this year that could provide an extra FFO boost. In particular, the company sees significant opportunities in the midstream and data sectors. Pollock elaborated on the current focus during the call:
We think that the areas that we are focused on tend to be businesses participating in the fiber rollout across Europe and North America. We are looking at tower opportunities around the world. Datacenter opportunities and particularly greenfield opportunities in Asia-Pacific. And we continue to evaluate these data distribution companies, similar to what we've done in New Zealand, because we see that as an opportunity for us down the road, so many, many situations on that front. On the energy side, it's more of a value situation. We still think that there are businesses that aren't trading at their intrinsic value that we think would make sense for us. And that's going to be a focus for the coming year.
Brookfield believes data is a multidecade investment opportunity to transform that sector's backbone from analog to digital. Meanwhile, the global economy will still require fossil fuels for decades to come despite the energy transition. Further, it believes that the energy sector can eventually repurpose existing assets to transport and store the fuels of the future.
Finally, Brookfield continues to look for new platforms to add to its portfolio. For example, it's actively monitoring the airport sector. Meanwhile, it has previously noted that water infrastructure would also be ideal for its portfolio. Brookfield's success in completing deals that expand an existing infrastructure platform or add a new one will provide additional fuel sources to grow its FFO this year.
This year could be a banner one for Brookfield Infrastructure
Brookfield Infrastructure battled many headwinds last year but still came out ahead thanks to its business model's durability and several growth-focused investments. Brookfield appears poised to deliver strong results this year, with those headwinds likely becoming tailwinds in 2021 and a pipeline of opportunities to convert. That could give its stock the fuel to deliver market-beating total returns in 2021 and beyond.
