Publicly listed global infrastructure giant Brookfield Infrastructure Partners L.P. (TSX: BIP.UN)(NYSE: BIP) recently reported some stellar results where it beat forecasts. Along with considerable liquidity, the widening global infrastructure gap and its high-quality diversified portfolio of assets means that it will continue to grow while unlocking value for investors.
Solid results
Brookfield Infrastructure’s latest solid results included a modest 5% year over year increase in funds flow from operations to US$1.2 billion and an impressive more than three-fold increase in net income to US$410 million. A key contributor to that solid bottom line performance was a one-off US$209 million contribution from the sale of an electricity transmission business.
The notable growth in funds flow and net income can also be attributed to a robust performance from Brookfield Infrastructure’s energy business where funds flow from operations of US$269 million was 29% greater than a year earlier. That segment’s net income shot up by an impressive 22% to US$39 million with that robust growth attributable to greater volumes of natural gas being transported because of higher Canadian production. This trend should continue as production in the energy patch, particularly among natural gas drillers, expands at a rapid clip.
In fact, a critical shortage of natural gas transportation and storage infrastructure in Western Canada means that the demand for Brookfield Infrastructure’s Western Canadian midstream energy assets will remain firm.
Brookfield Infrastructure is also continuing to close and integrate a range of acquisitions, which will further expand earnings. This includes the purchase of U.S., Australian and South American data centres, which, once complete and integrated in the partnership’s operations, will not only bolster earnings, but also see it enter a booming industry with solid growth prospects.
Datacentres are a newly emerging and crucial form infrastructure in the information age. The ever-expanding demand for mobile data services will cause the need for that infrastructure to expand at a rapid clip. Brookfield Infrastructure anticipates that funds flow from its datacentre business will have a 10% compound annual growth rate (CAGR), thereby further bolstering its partnership’s earnings.
The Brookfield Infrastructure is also in the process of closing the acquisition of an Indian natural gas pipeline, which is forecast to be completed before the end of February 2019. It is currently working through the requirements needed to complete the purchase of federally regulated assets from the Westcoast long-haul gas transmission line.
For these reasons, the partnership’s funds flow and bottom line should grow at a healthy clip over 2019.
Brookfield Infrastructure has also reloaded its coffers, recently completing a preferred share issuance for $100 million. The partnership finished with 2018 with considerable liquidity totalling US$3.4 billion composed of US$642 million of cash and financial assets as well as almost US$2.8 billion in undrawn credit. The cash holdings should increase once Brookfield Infrastructure completes the sale of up to a third of its Chilean toll road operations for after-tax proceeds of US$365 million. That leaves Brookfield Infrastructure well positioned to make further opportunistic acquisitions if and when the opportunity arises.
The robust 2018 performance saw management elect to hike the partnership’s annual distribution by 7% to US$2.01 per share, giving Brookfield Infrastructure a sustainable and tasty forward yield of just over 5%.
Why buy Brookfield Infrastructure?
The partnership offers investors a compelling mix of strong prospective growth combined with solid defensive characteristics, which make it a core holding for any portfolio. Brookfield Infrastructure has a long history of unlocking value for investors through capital recycling, making accretive as well as opportunistic acquisitions and regularly increasing its distribution.
