BBI - Babcock & Brown Infrastructure

[Viva_Las_Vegas]

I agree with the last comment. The sending out of correspondence is something they MUST do anyway.
However, this does not put in the negative territory.
I too would like to be a greedy little bastard and make my millions.....will hundreds of thousands would suffice.
I think infrastructure they hold such as ports is a good one, and the point you make at their asset sales being the non "fire sale" type is possibly an indicator that BBI management have time on their hands and are not as desperate as others make out to be.
Quite honestly I am hoping to see them around the 3 cent mark again so i can buy more at cheaper prices.
I'm still not sure about taking the plunge into BEPPA......

 

[banska bystrica]

Sounds like a mexican stand-off between one party that sees the negatives and one party that sees the positives.

That's where I'm different. I see very clearly the negatives but I can be objective and weigh the negatives up against the positives and come to a conclusion that the market has priced in too much "negative noise".
You will notice that most bears only see the negatives and therefore price doesn't play any part. If there is significant risk, they point blank refuse to consider that particular stock worthy of investment regardless of price.

The investors who are petrified of risk cannot understand this concept and that's fine. Just don't expect to ever see them stand out in a crowd. They are more likely to be a solid wage earner comfortable in the fact they have a secure job, pay their mortgage etc etc. That's not me.

 

[bellenuit]

I have looked long and hard across the ASX and cannot find a stock with unimpaired assets trading at a 96% discount to NAV with the quality of assets BBI has.

BB, I would very much appreciate it if you could indicate what your next 2 choices after BBI are. I am invested in BEPPA, but I am looking for other opportunities. I am aware that you have put a lot of time into your research, so I will understand if you do not want to share such information.

 

[Tysonboss1]

I'm still not sure about taking the plunge into BEPPA......

If you are willing to invest in the BBI story over the next few years I think that Beppa has a bit of an advantage over BBI.

the biggest advantage is that if everything goes well you are garanteed of unlocking $1.20 of value per share within 2.5 years.

with BBI you may unlock more than $1.20 per share if they start paying divs and share price recovers, but with no divs till beppa divs are looked after and the possibilty that beppa will cause dilloution to bbi shares if they are still trading at the low end, then it is likly that BBI won't return you $1.20 of value in the same time that Beppa will.

 

[Viva_Las_Vegas]

If you are willing to invest in the BBI story over the next few years I think that Beppa has a bit of an advantage over BBI.

the biggest advantage is that if everything goes well you are garanteed of unlocking $1.20 of value per share within 2.5 years.

with BBI you may unlock more than $1.20 per share if they start paying divs and share price recovers, but with no divs till beppa divs are looked after and the possibilty that beppa will cause dilloution to bbi shares if they are still trading at the low end, then it is likly that BBI won't return you $1.20 of value in the same time that Beppa will.

Not trying to be a pessimist here, but in regards to the $1.20 in 2.5 years, IS there a possibility that BBI could convert that debt into BBI shares, therefore issuing BEPPA holders with $1.20 worth of BBI shares? Or is there some sort of framework in place to protect the investor, such as BEPPA holders would have to vote for such a thing to take place?

 

[banska bystrica]

Viva,
So what if they give BEPPA holders $1.20 worth of BBI shares? $1.20 is a $1.20 whichever way you look at it. It would dilute BBI shareholders but would not affect BEPPA holders. The lower the conversion price the more BBI shares you get for your BEPPA.

 

[nathanblack]

But many would want the cash. If too many tried to sell at once it would put a bit of downward pressure on SP. having said that, it wouldnt effect long term holders.

 

[sinner]

Hi banska,

Look, don't let (vehement) disagreement stop you from posting your findings. They might even be enough to silence the critics?

We should try and make it a conducive environment for information to be shared, but also remember this is a forum, just like the forums in Sth America or ancient Rome and Greece. One has the right to voice their opinion but should be aware of unavoidable hecklers in the crowd!

Only time will prove anyone wrong or right in this scenario so there is no hurt voicing your speculation in the meantime.

In another thread someone posted a link where a guy had one the March stock tipping comp for some website (by picking LNC). When they asked what he would do with the prize, he said buy a BEPPA parcel.

This inspired me so I did the same, went and scalped a few lots on the SP500 and forex last night to buy a 10,001 lot of BEPPA this morning. The risk -$500- is pretty small considering the max reward -$10,000- so we are laying a bet for BBI managing to sell off assets instead of going pop. Even if they only end up returning 10c on the dollar this is still a good "punt".

Seems this has already begun:

Apologies if this has already been posted, I am a newcomer to the thread.
http://www.joc.com/node/410153
EU Clears European Ports Deal
March 18 2009

LONDON — European Union antitrust regulators have cleared a deal giving French and Luxembourg investment funds joint control of one of Europe’s biggest port operators.

The EU fast tracked approval of the sale by Australia’s Babcock and Brown Infrastructure of a near 30 percent share of its Euroports unit to France’s Antin Infrastructure Partners and BBEIF, a Luxembourg-based investment fund, because it will not impact competition among European ports.

BBI agreed to sell a 29.7 percent stake in Euroports, an operator of 20 bulk and break bulk cargo terminals at 15 ports in seven European countries, for $158 million in late December. It is now negotiating a second deal that would give the two funds as much as 49 percent of Luxemburg-based Euroports.

BBI has mandated Royal Bank of Scotland and Dresdner Kleinwort, a German investment bank, to negotiate the potential sale of its U.K. arm PD Ports after receiving unsolicited interest in the operator of Teesport, one of Britain’s largest ports.

BBI has also short listed potential buyers of a stake of up to 49 percent in its Dalrymple Bay Coal terminal, Australia’s second largest bulk shipping facility. It has said it would dispose of its entire holding if the price is right.

BBI last week said it would not be affected by the bankruptcy of investment bank Babcock and Brown, its legal controlling shareholder.

Oops that was a huge ramble, I only wanted to write a quick post asking if you would update us on your meeting with the instos in regard to a buy.

 

[YELNATS]

Hi banska,

Look, don't let (vehement) disagreement stop you from posting your findings. They might even be enough to silence the critics?

I'd like to second that, As a BBI/BEPPA holder I'm appreciating and enjoying the robust high-level debate on this thread between BB, HY, Select and others. Keep it up, the thrust and parry, it's all very informative and relevant.

 

[Viva_Las_Vegas]

I too am enjoying hearing all of your opinions. I think it is informative and constructive. Having all of these opinions debated helps me in my decision making process.

Yesterday you made refernces to BBI's debt, does the BEPPA $1.20 debt to BEPPA holders make up part of that debt?

If that is the case then, I think it is a better debt to have than to a bank.

 

[nathanblack]

All investments are made according to an individuals risk profile/tolerance and timeframe/goals.

Nobody is claiming BBI is a bluechip investment. If you want that, invest in the big banks.

BBI does however offer a large upside for long term investor. The beauty of this upside is it has little downside. At most you are losing 5cents. Its up to individual investors to use advisors and own research to determine the prospects of BBI and the likely retun on investment and timeframe.

The first main determining factor is will BBI survive. If NO then will the assets return book value, or above, or less. Then determine the likely return to BBI / BEPPA holders. Could range from 0cents-40cents???

If you research/belief are that BBI survives, it then depends on if you hold BBI or BEPPA. If you hold BBI you must think how long will it take for dividends to be reinstated, what will possible share price be and what time frame will it be to achieve return.

After asset sales, and debt reduction what will be left ? $0debt? wat assets and wat percentages will remain? wat would be the book value of ther company under the new structure? wat will be the new share price?

How much will the asset sale effect future income generating?

Also of some concern will be your opinion on how SPARCS and BEPPA will be handled as they could substancially dilute your holding.

Further more if BEPPA/SPARCS were reset in favourable terms to BBI it could result in share price upside.

The handling of BEPPA is the key to BEPPA holders. Are you holding out on an early rebuy/reset offer? If governance allowed would you accept an offer of say 40cents in a few months time? If you were paid out in 2012 in BBI shares would it bother you?

You can only use financials to determine likely asset values and incomes. Some people may draw different conclusions from the same numbers. Recent announcements regarding SPARCS may offer some guidance on future BEPPA reset.

Put your own value on the shares and buy if the numbers add up to YOU

Personally i think if a $1000 investment can return $20k by 2012 i think its worth the risk for that return. Worse case $0 return in near future or a small return if wound up. At various stages in the asset sale process you may be able to sell out at smaller gains if not in it for the long term.

Disclosure: I own $1000 BEPPA/ $0BBI. im in it medium term. if the price hit 40cents by years end i would probably sell.

 

[banska bystrica]

From Wilson HTM Ltd.

“VALUATION

Our fully diluted valuation has adjusted to reflect the above EBITDA changes, as well as movements in debt and cash. We have also incorporated the fall in the share price on the potential dilution from BEPPA and SPARCS conversion.

The upside is significant if the conversion of BEPPA and SPARCS can be avoided. The potential dilution is removed in our modeling such that the valuation per unit increases to 74c.”

Wilsons have been notoriously negative on BBI for a while now.

From ABN Amro, Senior Analyst, Sydney, Australia.

"EBITDA TABLE: 2011F

Energy Transmission & Distribution:

Powerco $86.1M
IEG 95.7M
CSC 19.7M
NGPL 277.1M
AETD 226.7M

Transport Infrastructure:

DBCT $241M
PD Ports 101.2M
Euro Ports 97.7M
Westnet Rail 119.3M

Corporate Fees -36.4M

Total EBITDA $1228.2"

Now, apply a conservative 12X EBITDA multiple to DBCT. That gives an Enterprise Value of $2.9Bn or net cash after debt of $1.3Bn. Current corporate debt totals $1.4Bn. Interesting isn't it?
Even the 2009/10 EBITDA for DBCT is $224M which equated to an EV of $2.7Bn.
I think BBI's strategy of keeping tenders open until June 30 is a very astute one. It allows time for competitive price tension. We know there are multiple interested parties and they would all be doing similar number crunching.
A sale of DBCT at these indicative prices would put a rocket up the BBI/BEPPA share prices. I'm not talking a few cents. Surely even the bears can see the upside.
A corporate debt free BBI would justify 30c+ in my opinion as they could use all the future free cash to take care of BEPPA in 2012.
What do others think?

You can also see that DBCT is not the "jewel in the crown" as the media keep saying. It's a great asset but NGPL is the jewel. I say flog 100% of DBCT, clear the corporate debt and Bob's your uncle.

 

[hardyakka]

Viva,
So what if they give BEPPA holders $1.20 worth of BBI shares? $1.20 is a $1.20 whichever way you look at it. It would dilute BBI shareholders but would not affect BEPPA holders. The lower the conversion price the more BBI shares you get for your BEPPA.

I have just caught up with the forum after being away a day and there have some great posts.

I am mainly invested in BEPPAs because I consider them much less risky than BBI with a maximum upside of $1.20 for each BEPPA, currently priced at 5.5cents.

This is because the BBI NTA is about $2.4billion and this is arrived at after provision has been made for full payment of BEPPA ($1) and any accrued interest (which would be 20 cents by 2012).

Because BEPPA has a priority over BBI then technically you could write down BBI by the amount of NTA, ie $2.4 billion and BEPPA would still be paid out in full. This is because the ordinary BBI units bear any equity risk/reward.

The other side of the equation is that if asset sales etc are above book then the BBI ordinary unitholders receive the full benefit of this, BEPPA holders being restricted to a maximum return of $1.20. So the reward side of the risk/reward equation is received only by BBI holders.

The B&B business model using debt etc is stuffed, but they did one thing well, that is acquiring blue chip assets, hence I expects sales prices to exceed book comfortably.

I am looking now to acquire BBI at a suitable price so I have a mix of BBI and less risky BEPPA.

Cheers

 

[Tysonboss1]

Not trying to be a pessimist here, but in regards to the $1.20 in 2.5 years, IS there a possibility that BBI could convert that debt into BBI shares, therefore issuing BEPPA holders with $1.20 worth of BBI shares? Or is there some sort of framework in place to protect the investor, such as BEPPA holders would have to vote for such a thing to take place?

there is a good chance of that, but that is what makes Beppa the better option,

lets look at an example,

say you were tossing up putting $1000 into either Beppa or BBI,... For this example we will assume that by that by 2012 BBI has recovered back to 50cents per share.

the following example shows what would happen if you invested $1000 in either BBI or Beppa.

BBI - $1000 / $0.05 = 20,000 shares
Beppa - $1000 / $0.06 = 16,666 shares

In 2012 your holdings would look like this,

BBI = 20,000 shares x 0.50cents = $10,000

Beppa = 16,666 shares x $1.20 = $19,999 of value / $0.50 per BBI share = 39,998 BBI shares = $19,990.

Offcourse if the BBi shares recover in value back to more that a $1 in that time frame then you may be better holding BBI, however Buying Beppa is kind of like locking in a fixed return no matter what happens to the BBI share price the Beppa share holder will get $1.20 of value per share (not a bad return if you ask me),

Most Beppa share holders probally hold BBI as well, but both operate differently, so should be treated differently.

I personally hold both on a 70 / 30 split with Beppa being the large portion.

 

[Tysonboss1]

You can also see that DBCT is not the "jewel in the crown" as the media keep saying. It's a great asset but NGPL is the jewel. I say flog 100% of DBCT, clear the corporate debt and Bob's your uncle.

Agreed, I would still like to see them hold some stake in DBCT though,

But yes I see NGPL as a fantastic asset, and there is room for them to expand there holding in the future,

 

[nathanblack]

its hard to anticipate future earnings when we dont know what assets and percentages they will still own. the longer they hold onto some the higher earnings will be.

i also favour disposing of one asset to pay off debt and keep the rest of the assets as untouched as possible.

do you think BBI need to eliminate debt or just reduce substancially? a bit of gearing has benefits tax wise and can magnify growth and allow more assets to be retained.

 

[Tysonboss1]

do you think BBI need to eliminate debt or just reduce substancially? a bit of gearing has benefits tax wise and can magnify growth and allow more assets to be retained.

They only have to reduce it to the point where they can regain their investment credit rating.

So the plan is to use all earnings from assets combined with asset sales to reduce this debt to the point where lenders are happy to refinance on favorable terms.

from there hopfully the game will start again with a more conservative plan of paying divs from operating cash flow, continuing to use some of the cash flow to further reduce debt, and eventually start growing through aquistion albeit on much lower LVR's than in the past.

I would be happy to see a 50 / 50 split of earnings into divs / debt repayment become part of the stratergy, with new assets aquired in the future only when they can be bought on 50% lvr's.

 

[nulla nulla]

They only have to reduce it to the point where they can regain their investment credit rating.

So the plan is to use all earnings from assets combined with asset sales to reduce this debt to the point where lenders are happy to refinance on favorable terms.

from there hopfully the game will start again with a more conservative plan of paying divs from operating cash flow, continuing to use some of the cash flow to further reduce debt, and eventually start growing through aquistion albeit on much lower LVR's than in the past.

I would be happy to see a 50 / 50 split of earnings into divs / debt repayment become part of the stratergy, with new assets aquired in the future only when they can be bought on 50% lvr's.

In this time of turmoil, I would like to see a conservative approach:

Optimistically asset sales at prices to realise more than their acquisition costs, with the proceeds from sale being used to retire debt and improve gearing;
Staff reductions as the wheeling and dealing of acquisition is put on hold;
Reduction in management fees payable to Babcock and Brown (because, lets face it, they would be getting paid for something they are not providing or have provided poorly); and
A return to paying dividends from profits from core earnings.

Happy to take a reduced dividend if it means they use the proceeds to further reduce debt and improve gearing. Not happy for management and directors to receive bonuses (except options of shares set at prices to reflect a recovery of the share price in the market).

I am curious as to why the price spiked from $0.039 to $0.05 at close of business on Friday 20 March 2009 and such a huge volume turned over in the closing auction?

 

[Viva_Las_Vegas]

In this time of turmoil, I would like to see a conservative approach:


I am curious as to why the price spiked from $0.039 to $0.05 at close of business on Friday 20 March 2009 and such a huge volume turned over in the closing auction?

I too was baffled at the huge jump at close of trade. Sometimes I wonder if some people out there have the inside word on pending announcements or similar.
I was hoping to buy at 3.8 on that Friday...so much for that.

 

[Malindidzumu]

Hi Nulla Nulla & Viva_Las_Vegas,

I think the answer to your question about the sudden and sharp price rise lies in the announcement by the WA Government on Friday that it has approved the $3.5BN Oakajee deep water port and rail project that will benefit West Net Rail which is 100% owned by BBI.