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Brookfield Infrastructure's Earnings Bounce Back as the Economy Shifts Into High Gear

By Matthew DiLallo – Aug 9, 2021 at 11:45AM

Key Points

  • An improving economy helped drive strong second-quarter results.
  • Brookfield sees high-end growth ahead.

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The global infrastructure giant is setting the stage for its next phase of growth.

This year, the global economy has come roaring back, fueled by low interest rates, government stimulus programs, and rebounding demand. That helped drive strong second-quarter results for Brookfield Infrastructure (BIP -1.17%) (BIPC -1.43%). It also sets the stage for the global infrastructure company to deliver robust results in the second half of the year.

A closer look at Brookfield's second-quarter results

Metric

Q2 2021

Q2 2020

Change

Funds from operations

$394 million

$333 million

18.3%

FFO per unit

$0.85

$0.72

18.1%

Data source: Brookfield Infrastructure. 

Brookfield Infrastructure's earnings soared 18% during the second quarter, powered by strong results across all four business segments:

A chart showing Brookfield Infrastructure's second quarter results in 2020 and 2021.

Data source: Brookfield Infrastructure. Chart by the author.

Brookfield's utility businesses grew their combined FFO by 21% during the second quarter. Several factors powered that earnings surge, including acquiring the remaining 10% interest in its Brazilian regulated gas transmission system. The company also delivered 10% organic growth due to inflation escalators on its existing contracts and nearly $400 million of capital projects it completed over the past year. These factors more than offset the impact of asset sales.

The company's transportation segment grew its earnings 36% year over year. The main driver was the improvement in the economy, which drove higher volumes across its business. This segment also benefited from acquiring a stake in a liquified natural gas operation.  

Earnings from Brookfield's midstream operations were roughly even with the prior-year period. However, that's due entirely to selling a 12.5% stake in its U.S. gas pipeline. After adjusting for that sale, earnings rose 14% due to higher gas volumes and the completion of the second phase of an expansion project.

Finally, earnings at the company's data infrastructure operations jumped 40%. Powering that growth was the acquisition of an Indian telecom business last year and the expansion of its French telecom operations.

A person in a hardhat at a port.

Image source: Getty Images.

A look at what's ahead for Brookfield Infrastructure

Brookfield is working on several strategic initiatives to bolster its financial flexibility and drive future growth. First, it closed the sale of its district energy operations, generating $1 billion in cash. That's one of several capital recycling transactions the company has completed over the past several months to enhance its ability to make new investments. Overall, it has generated $1.8 billion of cash this year, nearly half its planned goal through 2023. 

Meanwhile, Brookfield has made significant progress in its pursuit of Inter Pipeline (IPL). That company's board recently recommended that its shareholders accept Brookfield's offer after a rival bidder terminated its proposed merger. If successful, Brookfield will invest $2 billion into this midstream operation. The company noted in its letter to investors that this deal "will mark the start of the next expansionary period for our business, which should drive strong FFO per unit accretion."

Finally, Brookfield announced another joint venture with infrastructure REIT Digital Realty Trust (DLR -2.01%). They plan to develop and operate data centers in India. The companies aim to replicate their success in Latin America, where they've developed nine data centers since 2019.

In addition, the company sees strong organic growth in the near term, powered by the recovery of the global economy. That leads it to believe it can deliver organic growth at or above the high end of its 6% to 9% annual target range. Add it all up, and Brookfield appears poised to generate robust earnings growth over the next 18 months as it benefits from Inter Pipeline and its other growth initiatives.

Full steam ahead

Brookfield delivered exceptional second-quarter results as it benefited from the economic recovery and the organic growth of its existing businesses. That strong growth should continue over the next several quarters as the economic expansion gains momentum and the company completes its acquisition of Inter Pipeline. Those catalysts put Brookfield in an excellent position to generate attractive total returns for its investors in the future, making it a great infrastructure stock to buy now

Matthew DiLallo owns shares of Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Digital Realty Trust. The Motley Fool owns shares of and recommends Digital Realty Trust. The Motley Fool recommends Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation, and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Brookfield Infrastructure Partners Stock Quote
Brookfield Infrastructure Partners
BIP
$37.32 (-1.17%) $0.44
Digital Realty Trust Stock Quote
Digital Realty Trust
DLR
$109.03 (-2.01%) $-2.23
Brookfield Infrastructure Corporation Stock Quote
Brookfield Infrastructure Corporation
BIPC
$45.47 (-1.43%) $0.66
INTER PIPELINE LTD Stock Quote
INTER PIPELINE LTD
IPL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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