A lot has happened to Brookfield Infrastructure Partners (NYSE: BIP) over the past year. The global infrastructure operator has not only been refreshing its portfolio but has also shifted its financing strategy, such that the company won't be the same a year from now. Here are a few of the changes the company will have probably made over the next year.
A quick look back at a year of change
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Around this time last year, Brookfield Infrastructure closed the sale of a Chilean electricity transmission business that it had owned for more than a decade. The company has since reinvested the $1.3 billion of cash proceeds into seven acquisitions and expects to close its last deal by mid-year. Those new additions will not only provide a significant near-term cash flow boost but also position the company to grow earnings at an accelerated pace.
Brookfield's focus in the coming months will be to close the rest of its deals and integrate the new additions into its operations. However, that doesn't mean the company won't continue its wheeling and dealing over the next year.
Expect more asset sales in the next year
Brookfield Infrastructure Partners has now sold 11 businesses in the past decade, generating $3.7 billion in proceeds. It expects to be an even more active seller in the future as it shifts its funding model from issuing more stock to pay for acquisitions to cashing in on mature businesses. The company currently anticipates selling between $1.5 billion and $2 billion in assets over the next 12 to 18 months.
Brookfield noted on its fourth-quarter conference call that it had five sales processes under way, though it didn't specify the assets it wanted to sell. Instead, management stated that it's aiming to sell businesses that others value more highly than it does. It therefore seems likely that Brookfield will sell several legacy businesses over the next year. Those future sales will give it the cash to acquire other companies from which it believes it can earn a higher return.
Don't be surprised if it makes another midstream acquisition
One area where the company hopes to redeploy those future proceeds is in the North American energy midstream sector. Brookfield Infrastructure already owns a 50% stake in a large natural gas pipeline system in the U.S., as well as some natural gas storage assets. Meanwhile, it's in the process of buying Enbridge's (NYSE: ENB) natural gas gathering and processing business in Western Canada. Brookfield closed the first phase of that deal in October and expects to acquire the rest of that business from Enbridge by the middle of 2019.
However, Chief Operating Officer Benjamin Vaughan stated on the fourth-quarter call that the lack of capital available to midstream companies in the U.S. "provides great opportunities for us to joint venture with various partners to help them build out some of their infrastructure." He added: "There [are] opportunities to do carve-outs much like we did with Enbridge, and then absolutely to the extent that it makes sense from a value perspective, we will look at the public to privates as well." Those comments make it seem likely that Brookfield will bolster its energy midstream business in the next year.
Anticipate more deals in South America
Another area where it's actively looking for deals is in South America, specifically Chile and Peru. While the company recently sold a business in Chile, it remains interested in that country as well as Peru, where it recently made a few deals. CEO Sam Pollock stated on the fourth-quarter call that "we have a couple of interesting transactions that we are currently monitoring" in both countries. Pollock noted that while attractive businesses in these countries don't often come up for sale because they are smaller economies, some recently came on the market. That has Pollock "optimistic about our ability to transact in those markets in the not-so-distant future." Given those comments, investors should expect Brookfield to bolster its South American presence in the next year.
Brookfield Infrastructure will have a different look by early 2020
Brookfield Infrastructure Partners is currently refreshing its portfolio by selling more mature businesses and replacing them with those that can grow at a faster pace. It's about to enter the second phase of its refresh. That will probably see the company selling several more legacy businesses in the next year, which it intends on replacing with North American midstream assets as well as investments in Peru and Chile. This slow shift should enable Brookfield Infrastructure to grow cash flow at an accelerated pace in the coming years, which should create more value for investors than if it maintained the status quo.
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