Energy Fuels Brookfield Infrastructure Partners L.P.'s Q2 Results

By Markets Fool.com

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Brookfield Infrastructure Partners(NYSE: BIP) is off to a solid start in 2016. Thanks to investments made over the past year, the company's funds from operations (FFO) are up 12% so far this year. Further, with several strategic initiatives in the pipeline, the company is very optimistic about its future.

Brookfield Infrastructure Partners results: The raw numbers

Funds From Operations by Segment

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Utilities

$100 million

$93 million

7.5%

Transport

$102 million

$104 million

-1.9%

Energy

$43 million

$23 million

87%

Communication

$19 million

$20 million

-5%

YOY = year over year. Data source: Brookfield Infrastructure Partners.

What happened with Brookfield Infrastructure Partners this quarter?

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Energy fueled growth this quarter:

  • The utilities segment benefited from strong connection activities in the UK regulated distribution business as well as from growth projects commissioned over the past year.
  • The transportation segment was a little lighter due to an $8 million hit from foreign currency fluctuations as well as lower vehicle traffic on its Brazilian toll road business. Higher volumes at its rail business in Brazil partially offset this along with higher traffic on its Chilean toll roads and cost savings at its Australian railroad.
  • The energy segment benefited from boosting its North American gas transmission business stake as well as from higher spreads in its natural gas storage business.
  • The communications segment remains relatively stable.

What management had to say

CEO Sam Pollock,commenting on the company's results, said:

2016 is proving to be a strong year for our business, with FFO per unit up 12% to date. We believe that our backlog of organic growth projects due to come on-line, combined with our recently acquired assets and large pipeline of new investments, will enable us to continue this growth into 2017 and 2018. With this cash flow visibility, we decided mid-year to increase our distribution by 3.5%.

Brookfield Infrastructure Partners has been an active acquirer over the past year, which is fueling robust FFO growth. At the moment, it is in the process of closing three transactions that will drive growth in the near term.

During the quarter, the company invested $130 million in a portfolio of urban toll roads in Peru. A30-year concession backs these toll roads, which will drive stable cash flow over the long term. In addition to that, it has identified several expansion projects to drive returns higher.

Shortly after the quarter closed, it invested $180 million in a natural gas storage business. Doing so doubled the company's natural gas storage capacity, making it one of the largest independent storage providers in North America. Also, it acquired this capacity below replacement cost, which should fuel attractive long-term returns as the storage market normalizes.

Finally, the company is nearing the close of a transaction to invest $350 million in acquiring a stake in an Australian port and rail logistics business. That said, it initially sought to buy a larger stake in that entity, but had to settle for a smaller role in the transaction due to regulatory concerns and a competing offer.

Looking forward

In addition to those transactions, Brookfield has two more deals in the pipeline. First, it is in exclusive discussions to acquire a stake in a natural gas transmission company in southern Brazil from oil giant Petrobras (NYSE: PBR). That business is 100% contracted under long-term ship-or-pay agreements. Brookfield expects to invest a minimum of $700 million into the deal.

In addition to that, the company was awarded a portfolio of greenfield transmission lines in Brazil and is in discussions with several sellers to acquire operating assets to build a business with substantial scale. These transmission lines are under 30-year concessions that will earn stable cash flow. The company anticipates investing about $200 million to complete these projects over the next few years.

With so much visible growth ahead of it, Brookfield Infrastructure Partners decided to increase its quarterly distribution by 3.5%, which is on top of the 7.5% increase it announced earlier this year. Further, it believes that its next distribution increase at the beginning of 2017 could be "at the higher end of our annual distribution growth range" of 11% to 13% if it completes all of its anticipated acquisitions and organic growth projects.

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Matt DiLallo owns shares of Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.