Brookfield Infrastructure Partners L.P.'s Best Business Segment in 2016

By Matthew DiLallo Markets Fool.com

Image source: Getty Images.

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Last year marked another solid one for Brookfield Infrastructure Partners (NYSE: BIP). Through the end of the third quarter, the global infrastructure company's funds from operations (FFO) were up 12% on a per-share basis, which puts it on pace for another year of double-digit annual growth. FFO in all four of the company's business lines grew last year, thanks to a combination of recently completed acquisitions and organic growth projects. That said, one segment clearly stood out as its best in 2016: energy.

Drilling down into why energy was last year's best performer

As the chart below shows, the company's utilities and transport segments generated the bulk of its funds from operations. However, most of the growth came from its energy-related businesses.

Data source: Brookfield Infrastructure Partners L.P. Chart by author. Note: In millions of dollars.

Overall, earnings in both the utilities and transport segments grew by a low single digit growth rate, while energy earnings jumped 75.7%. That was an even more robust rate than communications, where FFO leaped 42.5%, primarily because the company acquired this business in 2015.

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Several factors fueled the energy segment's high growth rate last year. First, Brookfield Infrastructure Partners teamed up with natural gas pipeline giantKinder Morgan (NYSE: KMI) in a transaction to acquire full control of the Natural Gas Pipeline Company of America. In the deal, Brookfield and Kinder Morgan increased their stakes from 20% and 27%, respectively, up to 50% apiece. As a result, Brookfield's share of that system's earnings nearly doubled. In addition to that, Kinder Morgan and Brookfield invested capital in the business to lower its leverage, which reduced interest expenses and increased FFO. Brookfield also commissioned several growth projects in its district energy business last year, which added incremental earnings. Finally, Brookfield acquired a natural gas storage business in North America, which further bolstered earnings. Needless to say, last year was a busy one for the company's energy segment.

Image source: Getty Images.

Can energy continue to fuel growth at Brookfield Infrastructure Partners?

Brookfield's energy segment still has plenty of momentum that should drive further earnings growth in 2017. Fueling this growth is the continued contribution from recent acquisitions and project completions. On top of that, the company has about $230 million of growth projects in development, which should drive double-digit compound annual earnings growth over the next few years.

That said, Brookfield Infrastructure Partners has even better growth prospects in its other segments. For example, the company has $880 million of growth projects across its utilities businesses that should come online over the next two years, and it expects to invest $1.1 billion over the next three years in its transportation portfolio. These projects should deliver mid-single to low-double digit compound annual growth rates across these various businesses during the next five years.

On top of these organic growth projects, Brookfield has several needle-moving acquisitions in the pipeline that should drive earnings growth even higher. In transportation, the company recently completed the acquisition of a group of Australian ports and toll roads in Peru. Meanwhile, the company joined a consortium led by parent company Brookfield Asset Management (NYSE: BAM) to acquire a stake in Petrobras' (NYSE: PBR) natural gas utility in Brazil. Overall, Brookfield Infrastructure will invest $1.1 billion to buy 28% of the Petrobras pipeline transmission system, up from an initial expectation that it would acquire 20% of the business.

There have also been several reports that Brookfield Infrastructure Partners and Brookfield Asset Management are teaming up to buy communication tower companies in India. According to one report, Brookfield signed a $1.6 billion deal to acquire a 51% stake in Reliance Infratel, which is the tower unit of Reliance Communications. In addition to that, Brookfield Asset Management reportedly entered exclusive talks to buy India's largest tower owner Bharti Infratel for $11 billion. If both deals close and depending on the size of its participation, Brookfield Infrastructure Partners' communications earnings could surge.

Investor takeaway

Brookfield Infrastructure Partners' energy segment was clearly the greatest driver of the company's earnings growth in 2016. However, it is not likely to keep that crown in 2017 because the company has stronger growth prospects elsewhere. Depending on the company's ability to close acquisitions currently in its pipeline, the utilities or communications segments will likely drive growth in 2017.

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Matt DiLallo owns shares of Brookfield Asset Management, Brookfield Infrastructure Partners, and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.