One quarterly earnings report in a year can make or break a stock. It’s been half a month since Brookfield Infrastructure Partners (TSX:BIP.UN) presented its Q1 2024 results, and from May 1, the utility stock has risen 9% to $41.39.
Many market analysts see this owner and operator of critical global infrastructure networks as an investment opportunity for income, growth, or both. But did the financial results and business outlook impress existing investors and help win new ones?
The $19.5 billion company is a subsidiary and the infrastructure services arm of Brookfield Asset Management, one of the world’s largest alternative investment management firms. In addition to the potential capital gain, the large-cap stock pays a hefty 5.45% dividend.
Business performance
Brookfield Infrastructure takes pride in its infrastructure businesses in various sectors and geographies. The four segments – utilities, transport, midstream, and data – collectively provide stable cash flows and have strong growth prospects.
According to its CEO, Sam Pollock, the business is the strongest it has ever been, owing to the curved revenue profile and sector tailwinds that drive organic growth. He adds that the business performed well, notwithstanding higher interest rates.
In the three months ended March 31, 2024, net income soared 469.2% year over year to US$814 million, while cash from operations climbed 62.7% to US$841 million versus Q1 2023. The transport segment contributed the most significant year-over-year increase in funds flow from operations (57% to US$302 million).
Brookfield Infrastructure acquired Triton International Limited, the world’s largest lessor of intermodal freight containers, in September 2023. The acquisition delivered and increased transport operations by 10%. The submetering business (utilities) is expanding in the U.S., while the natural gas gathering and processing operation (midstream) added incremental processing capacity and is expanding.
Management anticipates significant activity across the global data centre platform from major hyper-scale customers and following strategic acquisitions. Brookfield Infrastructure acquired a German telecom tower operation, two hyperscale data centre platforms, and 40 retail colocation sites.
Business outlook
Pollock believes that the strong business performance and management’s strategic outlook outweigh all factors related to the near-term interest rate environment. He expects interest rates to stabilize over the long term. He said the global footprint is a competitive advantage. It allows the company to transact or make deals in varying economic conditions.
Furthermore, Brookfield Infrastructure’s long-term outlook for the global economy remains positive. However, some quarters will have higher volatility due to geopolitical risks and low-interest rate returns. Pollock also notes that infrastructure assets attract institutional investors because they provide stability to their investment portfolios.
A buy-and-hold stock
Brookfield Infrastructure maintains a low-risk profile and tremendous resiliency, as approximately 90% of cash flows are regulated, contracted, and inflation-protected. The company has been paying dividends for 61 quarters (since Q1 2008) and targets a distribution growth between 5% and 9% annually.
The 9% stock price increase in 15 days is modest, if not on the low side. If the business did well in the high-interest rate environment, imagine the financial results once the monetary policy eases. Brookfield Infrastructure is the top buy-and-hold stock in May 2024.
