BBI - Babcock & Brown Infrastructure

[dogby]

The good news for holders is from a T/A point of view it is building a solid base with volume

I dont know very much about T/A, and would appreciate any input from those with more experience, but is that a double bottom forming on the BBI chart ?

 

[dhukka]

The Fundamental Analyst???

Your signature is very questionable dhukka. That asset is so insignificant it doesn't even register on the radar. Do you understand the difference between an accounting loss and a cash loss? When you work that out, please rejoin the debate. Until then, please do some financial analysis homework. It is very frustrating trying to debate facts with people who are have such limited knowledge. That is one problem with share forums. Every poster has a different level of knowledge and for those that have done hundreds of hours of research it is a source of much frustration.

Would anyone be interested if I started a BBI blog? All views welcome so long as there is factual supporting evidence.

It's always interesting to watch the emotionally crippled come apart when reality intrudes on their delusions. Trying to change the subject by referring to accounting losses and the size of the assets to deflect from your errors is sad. The 'fact' is, you have stated numerous times that BBI did not overpay for their assets and here they are, unable to get what they paid for the Gascan asset.

You don't get to decide who joins the debate, the BBI thread is not just for mindless backslapping between BBI cheerleaders. You still haven't worked out how accounting losses impair the equity of a company, that's too bad, seems a few hundred of those hours of 'research' were wasted. This is not the first time you've been wrong on BBI and it won't be last, get used to it.

 

[banska bystrica]

Viva,
This is frustrating. Read investorpaul's post where he quotes my speadsheet with NET EQUITY figures.
You see a figure of $800M for DBCT? That is NET EQUITY. That implies an Enterprise Value (EV) of $2.5Bn because DBCT has $1.7Bn of non-recourse debt attached to it. This is a completely different issue to corporate debt.
If DBCT sells for $2.5Bn, that will pay off the NON-RECOURSE debt of $1.7Bn attached to DBCT and free up an additional $800M to pay down corporate debt (RECOURSE DEBT).

 

[banska bystrica]

You don't get to decide who joins the debate

I'm setting up a BBI blog so yes I do decide good buddy. ALL views welcome, positive and negative so long as they are backed up by facts.
Why even the "emotionally crippled" (dhukka's words) can join.LOL The bell is ringing dhukka and you know what? It ain't Mr Whippy. Good luck all.

 

[dhukka]

The chart indicates the share price performance is a dog. The question remains: Is the company fundamentally a dog and is it a buy or sell at 5c? The chart is evidence of misery for long term holders to date but it's the future we are interested in.

The 'facts' are overwhelmingly that the company is fundamentally a dog. The extremely poor returns this business generates on it's assets and equity show that clearly.

Return on Capital - 2003 5% 2004 6% 2005 2% 2006 4% 2007 5% 2008 3%

Return on Equity - 2003 5.3% 2004 5.8% 2005 -0.5% 2006 4.5% 2007 4.6% 2008 -1.7%

On whether the stock is worth more than 5c, if it survives, it may well be and speculators may pocket some nice returns if buying in at the lows. Still, it is a mediocre business at best on a fundamental basis.

 

[investorpaul]

It's always interesting to watch the emotionally crippled come apart when reality intrudes on their delusions. Trying to change the subject by referring to accounting losses and the size of the assets to deflect from your errors is sad. The 'fact' is, you have stated numerous times that BBI did not overpay for their assets and here they are, unable to get what they paid for the Gascan asset.

You still haven't worked out how accounting losses impair the equity of a company, that's too bad, seems a few hundred of those hours of 'research' were wasted. This is not the first time you've been wrong on BBI and it won't be last, get used to it.

i believe you may be incorrect. take for example a company purchases an asset for 10 million.
The asset is depreciated by 1 million a year. After one year the company decides to sell the asset, they achieve a price of 10 million.
Therefore the company has sold it for the exact same price they paid for it. However they would show an accounting loss of 1 million, from depreciation because it is considered an expense

 

[dhukka]

I'm setting up a BBI blog so yes I do decide good buddy. ALL views welcome, positive and negative so long as they are backed up by facts.
Why even the "emotionally crippled" (dhukka's words) can join.LOL The bell is ringing dhukka and you know what? It ain't Mr Whippy. Good luck all.

Still deflecting I see, being unable to admit you were wrong is a dangerous condition to have when investing. Here are some 'facts' for the first post of your blog:

You said BBI would did not overpay for any of their assets - you were wrong
You said you couldn't see directors choosing to convert SPARCS into BBI units - wrong again

 

[dhukka]

i believe you may be incorrect. take for example a company purchases an asset for 10 million.
The asset is depreciated by 1 million a year. After one year the company decides to sell the asset, they achieve a price of 10 million.
Therefore the company has sold it for the exact same price they paid for it. However they would show an accounting loss of 1 million, from depreciation because it is considered an expense

I believe you don't know what you're talking about, accounting losses include depreciation. An accounting loss occurs on the sale of an asset when the proceeds are less than the book value of the assets, book value is after depreciation.

 

[Viva_Las_Vegas]

People quit your cat fighting and be a bit more constructive.
For starters you call BBI a dog, to me that's a good thing. I rate my dog above pretty much all humans. Dogs are fabulous creatures, loyal and just plain old tops. You wanna call BBI something make it more creative.

Now there was a question raised the other day which has not been answered, this could shed some light on BBI's current performance and status.

1) How much is BBI turning over at present from all of its assets/businesses. Basically despite the GFC how much money is coming IN?
2) To date (given that dividends were suspended) how much debt has BBI been able to clear?

I think these two questions would add to the debt, rather than going around in circles arguing about SP and debt/sale of assets DBCT.

 

[awg]

Viva,
This is frustrating. Read investorpaul's post where he quotes my speadsheet with NET EQUITY figures.
You see a figure of $800M for DBCT? That is NET EQUITY. That implies an Enterprise Value (EV) of $2.5Bn because DBCT has $1.7Bn of non-recourse debt attached to it. This is a completely different issue to corporate debt.
If DBCT sells for $2.5Bn, that will pay off the NON-RECOURSE debt of $1.7Bn attached to DBCT and free up an additional $800M to pay down corporate debt (RECOURSE DEBT).

Hi BB,

thx for all yr input...perhaps u should regard posts that challenge yr analysis as opportunities to test & reinforce..it would not help u to be surrounded by yes men

i look at them that way, probably most other posters are able to see depth of analysis, also make out u have skin in the game. DYOR!!

due to the nature of this investment, it is probably better that some posters draw attention to the risk, and no surprise, vigorous disagreement.

A simple question if I may:

Can u see any reason at all why not to hold BEPPA in preference BBI, if one believes that BBI will survive, but NOT be over $1.32 in 2012?

disclose: hold both

 

[skc]

i believe you may be incorrect. take for example a company purchases an asset for 10 million.
The asset is depreciated by 1 million a year. After one year the company decides to sell the asset, they achieve a price of 10 million.
Therefore the company has sold it for the exact same price they paid for it. However they would show an accounting loss of 1 million, from depreciation because it is considered an expense

The $1m depreciation would be accounted as an expense for the year as you mentioned. But the sale price of $10m is $1m over book value (now marked down to $9m after depreciation) and therefore the firm will account for a one-off gain of $1m from this asset disposal.

 

[Viva_Las_Vegas]

I believe you don't know what you're talking about, accounting losses include depreciation. An accounting loss occurs on the sale of an asset when the proceeds are less than the book value of the assets, book value is after depreciation.

If i work from home I can claim depreciation on my home office. It is a deprecition of my asset = my home.
But when it comes to sell my home I am not going to sell it at a cheaper price because i claimed its depreciation over the years.
The asset still holds its value and still brings in income, but just because it technically depreciates as per our tax laws doesnt mean it is worth zero after 20 yrs.
I believe this to be the same for assets such as ports etc.

My worth

 

[prawn_86]

*puts mod hat on*

Just stepping in early here people. Lets please try and be civil. A vigourous debate is what ASF is all about, but there is no need to resort to calling names or insulting others. Simply present the faccts as you see them and then be open to constructive critisicm and others opinions.

 

[dhukka]

If i work from home I can claim depreciation on my home office. It is a deprecition of my asset = my home.
But when it comes to sell my home I am not going to sell it at a cheaper price because i claimed its depreciation over the years.
The asset still holds its value and still brings in income, but just because it technically depreciates as per our tax laws doesnt mean it is worth zero after 20 yrs.
I believe this to be the same for assets such as ports etc.

My worth

And your point is? Your home may well hold it's value, it will in all probability be worth more when you come to sell it. Clearly Gascan didn't hold its value.

 

[fuzzie]

And your point is? Your home may well hold it's value, it will in all probability be worth more when you come to sell it. Clearly Gascan didn't hold its value.

A question is, was Gascan a legacy holding that came along with the rest of IEG when it was acquired by BBI? Has divesting Gascan made IEG a better holding now for BBI? I don't know anything about Gascan, but it appears to have only had 60000 customers which doesn't seem a lot for Europe. Cleaning out poor debt at this point of the cycle doesn't seem to be unwarranted, but I'd still like to see what that €13 mill loss was compared to it's sale price.

 

[Viva_Las_Vegas]

And your point is? Your home may well hold it's value, it will in all probability be worth more when you come to sell it. Clearly Gascan didn't hold its value.

Correct. My point is that despite depreciation my home will most likely sell more than what i paid for it, BUT when there is a dud house market or in this case GFC then the old rule of buy cheap sell cheap comes into play.

Things are only worth as much as people are willing to pay for them. And BBI being in financial difficulty will play in the buyers favour who knows they need to sell these assets.

Obviously GASCAN was not one of those hot assets.

To set the record straight, I hold BBI and BEPPA and I am no dilusionist I think there is a possibility they will fail, but the reward out weighs the risk for me. i HOPE they can sell DBCT, I HOPE they can clear their debts.

I have also looked at other stocks that were once good but now not doing well HFA, MDT to name a couple, probably all bad but they hold some good assets.

I go into this investment looking to the future hoping to have something to retire on in 30 years, and not the measly Australian Govt pension.

If you want a sure thing I know this Nigerian prince that wants to hand out his fortune.

 

[banska bystrica]

BBI did not pay over the odds for their assets:

Gascan was part of IEG. They did not over pay for IEG. Gascan came with IEG. It is but a single part of the entire IEG group. IEG was a bargain.

I stated BBI did not pay too much for it's assets. Go to the BBI webcast of the Interim Result. Listen to Jonothan Sellar and his reference to BBI not buying the majority of their assets at the peak of the cycle.
The most recent asset purchased was NGPL. They paid a very conservative 10.7 times EBITDA. That is a bargain in fact when you look at its performance.
I will concede that perhaps BBI paid top odds (but not over the odds) for the Alinta assets (courtesy of the pillaging parent BNB) but all other assets were bought well.
I am not interested in what one small asset within a large asset sold for.
I am interested in the main assets as accounted for:

DBCT
PD Ports
Euroports
Westnet Rail
Powerco
IEG
Cross Sound Cable
NGPL
AET&D (comprising Dampier to Bunbury pipeline, WA Gas, Multinet Gas, Tasmanian Gas Pipeline, Westnet Energy)

If people like dhukka want to be pedantic and break up every large group into smaller subsets and apply a valuation test on every single asset, go ahead.
Do the same with BHP or Rio Tinto. Can you assure me that every single asset in BHP's portfolio would make a profit if sold today? I think any reasonable person knows the answer to that. Some here are jumping at shadows or clutching at straws trying to find ways that justify BBI being a dog with no future in their minds. I say apply your asset stress tests to every ASX listed company and see what the result is. If the best you can come up with for BBI is "Gascan sold at a loss", then that convinces me even more BBI/BEPPA is a steal. The bell is ringing and it's the BBI/BEPPA train about to the leave the station.

 

[banska bystrica]

Ok, this is the guts of it from an analyst who is actually not very bullish on BBI.
It's from Wilson HTM.
NET EQUITY VALUE of the BBI assets:

TRANSPORT DIVISION:

DBCT $772M
PD Ports $460M
Westnet Rail $215M
Euroports $405M

Total net equity for Transport assets: $1.852Bn

ENERGY DIVISION:

Powerco $291M
IEG $530M (for you dhukka )
CSC $1M
Tasmanian Gas Pipeline $254M
WA Gas $209M
AlintaGas Networks $111M
Multinet $30M
Dampier to Bunbury Pipeline $349M
NGPL $953M

Total net equity for Energy Division: $2.728Bn

Total net equity $4.58Bn

Strip out Corporate debt $1.4Bn
Strip out NZ bonds, SPARCS and BEPPA $1.1Bn

NET ASSET VALUE $2.08Bn

No of shares on issue 2.375Bn

Net equity per BBI security = 2.08Bn divided by 2.375Bn = 87c

That's from a fairly neutral to negative analyst.

 

[banska bystrica]

I cannot see net asset impairment of $2Bn to justify a BBI price of 6c.
I am open to anyone that can justify that impairment and please specify the asset and the reasons for impairment. The most likely assets for impairment would be the unregulated transport assets ie. Euroports, PD Ports. In the midst of the greatest global financial crisis in our lives, these two assets held up very well. What people forget is Great Britain is an island and the only way to get bulk cargo in and out is by sea. For PD Ports and Euroports to be impaired to a degree whereby it killed off the net equity in those assets, we would have to have a global situation where ships no longer came to and from the UK and Europe. It would be like a depression for years. That may be a possibility and is certainly one of the risks for BBI.... that the GFC continues for years and worsens. That can kill BBI. I accept that. It will also kill RIO and other major companies if things got that bad.
6c for BBI and 7c for BEPPA is worth the risk/reward... in my opinion. Maybe I'm wrong? Time will tell.

 

[dhukka]

BBI did not pay over the odds for their assets:

Gascan was part of IEG. They did not over pay for IEG. Gascan came with IEG. It is but a single part of the entire IEG group. IEG was a bargain.

I stated BBI did not pay too much for it's assets. Go to the BBI webcast of the Interim Result. Listen to Jonothan Sellar and his reference to BBI not buying the majority of their assets at the peak of the cycle.
The most recent asset purchased was NGPL. They paid a very conservative 10.7 times EBITDA. That is a bargain in fact when you look at its performance.
I will concede that perhaps BBI paid top odds (but not over the odds) for the Alinta assets (courtesy of the pillaging parent BNB) but all other assets were bought well.
I am not interested in what one small asset within a large asset sold for.
I am interested in the main assets as accounted for:

DBCT
PD Ports
Euroports
Westnet Rail
Powerco
IEG
Cross Sound Cable
NGPL
AET&D (comprising Dampier to Bunbury pipeline, WA Gas, Multinet Gas, Tasmanian Gas Pipeline, Westnet Energy)

If people like dhukka want to be pedantic and break up every large group into smaller subsets and apply a valuation test on every single asset, go ahead.
Do the same with BHP or Rio Tinto. Can you assure me that every single asset in BHP's portfolio would make a profit if sold today? I think any reasonable person knows the answer to that. Some here are jumping at shadows or clutching at straws trying to find ways that justify BBI being a dog with no future in their minds. I say apply your asset stress tests to every ASX listed company and see what the result is. If the best you can come up with for BBI is "Gascan sold at a loss", then that convinces me even more BBI/BEPPA is a steal. The bell is ringing and it's the BBI/BEPPA train about to the leave the station. Once DBCT sells, the train will have left and you risk averse investors will be left standing on the platform.

This business is mediocre because of the extremely poor returns it generates on it's assets, a fact which is indisputable looking at their historical returns over the past 5 years. This has been mentioned numerous times and noone has disputed it. Until those returns improve significantly it will continue to be a dog of a business.

The share price on the other hand whilst it has been a dog, may do extremely well for those who bought in at the lows, if the company is able to survive and ekes out the the paltry returns projected by the likes of Wilson HTM.