Brookfield Infrastructure Partners L.P.
(
BIP
) posted second-quarter 2012 loss per unit of 14 cents compared
with earnings per unit ("EPU") of 17 cents in the year ago-quarter
and Zacks Consensus Estimate of 58 cents.
The significant year-over-year decline was due to a loss at the
Transport and energy and higher Corporate and Other expenses as
well as a fall in profits at Timber resulting from weaker demand
from China and South Korea.
Operational Update
The partnership generated total revenue of $493 million, up 15.2%
year over year. General and administrative expenses during the
quarter were $22 million, up 46.7% year over year.
Key Performance Measure Update
The partnership's funds from operations ("FFO") were $111 million,
up 8.8% year over year from $102 million. The robust results were
driven by significant increase in FFO from the partnership's
Infrastructure's transport and energy and utilities segments.
However, this was partially offset by a decline in performance in
its timber business.
On a per-unit basis, FFO was 60 cents, down from 65 cents in the
year-ago period due to an equity issuance in October 2011. Adjusted
funds from operations were $80 million, down from 82 million in the
second quarter of 2011.
The Partnership's other performance measure of earnings before,
interest, tax, depreciation and amortization ("EBITDA") was $201
million, up 8.6% year over year.
Segment Performance
Utilities:
The segment generated FFO of $78 million, up 18.2% year over year
driven by increased connections revenue from its UK regulated
distribution business and the contribution from its Colombian
regulated distribution company that was acquired in January 2012.
Transport and Energy:
FFO from the segment was $53 million, up 35.9% year over year. The
results reflect doubling of FFO from its Australian railroad due to
contribution from its three expansion projects and an increase in
grain volume as a result of record harvest in Western Australia.
The partnership had used the equity proceeds for the expansion of
Brookfield Infrastructure's Australian railroad.
Timber:
Segment generated FFO of $6 million, down 53.8% year over year due
to weaker demand from China and South Korea that led to downward
pressure on log prices in both the domestic and export markets.
Corporate and Other:
Segment loss from operations was $26 million versus $16 million in
the year-ago quarter.
Financial Update
Cash and cash equivalents as of June 30, 2012 were $128 million,
down 45.3% year over year. Non-recourse borrowings at the end of
June 30, 2012 were $1,252 million versus $4,752 million at the end
of June 30, 2011. Net-debt at the end of the quarter was $5,593
million, up from $5,193 million at the end of the previous-year
quarter.
Distribution Declaration
The quarterly distribution rate of the partnership is 0.3750 cents
per unit, payable on September 28, 2012. During the quarter, the
partnership's payout ratio was 63%, which is between its expected
range of 60% to 70%. This target range would lead to annual growth
in distributions in the range of 3% to 7%.
Acquisition Update
Post quarter, on August 6, 2012, a joint venture between Brookfield
Infrastructure consortium and Abertis Infraestructuras, S.A.
("Abertis") entered into definitive agreements to acquire 60%
interest in Obrascon Huarte Lain Brasil S.A. (OHL Brasil) for $1.7
billion.
The amount comprises of $1.1 billion of equity and $600 million
of assumed liabilities. Brookfield Infrastructure and its
institutional partners will own 49% of the joint venture and
Abertis will own the remaining 51%.
In order to acquire the remaining 40% of OHL Brasil, the joint
venture plans to issue a tender offer, if needed. Post acquisition,
Brookfield Infrastructure expects to invest approximately $250
million, with the possibility of a follow-on investment pursuant to
the tender offer. The acquisition is expected to be closed in
fourth quarter of 2012.
Our Take
The partnership missed the quarter miserably. However, going
forward, the partnership's strategic initiatives and acquisitions
will set up a leading South American toll road platform and also
double the size of its UK regulated distribution business, acting
as a key driver for growth.
Moreover, with the completion of Australian railroad's expansion
program, partnership's five expansion projects will be on line by
the end of full-year 2012. Over the long term, the company expects
a total return in the range of 12% to 15% on the infrastructure
assets.
However, reduction in demand for natural gas, minerals or timber,
changes in economic or government policies, and foreign currency
risk, pose a matter of concern for the partnership. The partnership
presently retains a short-term Zacks #3 Rank (Hold) rating.
Based in Hamilton, Bermuda, Brookfield Infrastructure is primarily
engaged in ownership and operation of premier utilities, transport
and energy, and timber assets in North and South America,
Australasia and Europe. It operates high quality, long-life assets
that generate stable cash flows and require relatively minimal
maintenance capital. It also seeks acquisition opportunities in
other infrastructure sectors with similar attributes.
Some of its main competitors are Ecofin Ltd. and PSEG Resources
L.L.C, a unit of
Public Service Enterprise Group Inc.
(
PEG
).
BROOKFIELD INFR (BIP): Free Stock Analysis
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PUBLIC SV ENTRP (PEG): Free Stock Analysis
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