BBI - Babcock & Brown Infrastructure

[nathanblack]

Nathan and Banks, thank you for your explanation. I guess we all have a different appetite for risk.
Hope your faith is justified.
Good luck.

your welcome julia,
in addition to previous comments, the risk is slightly less due to the longterm nature of the majority of debt. there is not the rush to sell that centro or ozl have had.

but i do regard this as one of my riskier stock and have only a minor holding at this stage.

in the back of my mind i question if im missing something. what are analysts and market seeing that im not? but hopefully one large sale will payoff most debt and the market will re-value at that point.

i think this kind of security adds diversity to my portfolio and i would like another similar to spread the risk if 1 out 2 succeed it would still be worthwhile.

goodluck in all your trading

 

[drsmith]

Julia,
Current NAV for BBI is $1 per BBI. This equated to $2.4Bn. This figure also includes the debt to BEPPA holders. Therefore, for BEPPA to be worth zero, the following has to happen:
BBI put into administration.
The firesale of assets leaves no money for BEPPA holders because the prices received destroyed $3.18Bn of equity. ($2.4Bn plus 780M BEPPA debt).

Can that happen? Yes it can but in my opinion highly unlikely. I might be wrong though. As of yesterday I now have 4 million BEPPA to say I'm right. Maybe that's madness?

Perhaps there's an element of something that can be very, very rewarding but also a little blinding.

 

[banska bystrica]

Research, research, research drsmith. That's what's required. Then, if an investment doesn't work out, you cannot blame anyone else. If I research a stock thoroughly and I mean hundreds of hours, not just a couple of hours, I am comfortable with my investment decisions. If it all goes pear-shaped, that's life. We move on.

 

[hardyakka]

Research, research, research drsmith. That's what's required. Then, if an investment doesn't work out, you cannot blame anyone else. If I research a stock thoroughly and I mean hundreds of hours, not just a couple of hours, I am comfortable with my investment decisions. If it all goes pear-shaped, that's life. We move on.

That really sums it up in a nutshell. I have not put as much time in as BB researching BBI and BEPPA, however have conducted enough to form my own view on these securities. I hold just over 2 million BEPPA and will only now seek to increase this further if price spikes permit.

Good luck holders

 

[cpsharky]

G'day BB, HY and all,

I've been trying to do a simple valuation spreadsheet for BBI, spurred on by BB/Melua from another place. I am going to go out on a limb here and say that BBI don't publish clear book values at asset level. There is some info on the value of various concessions etc, but no assurance that this represents full asset value. I am an amature at accounting - having done it at school - but at least I know the basics.

Anyway, book values aren't that interesting and are not a good indication for calculating NTA as they represent historical prices. IMVHO it would be better to use asset level EBITDA multples to estimate asset values and then subtract all debt to arrive at a possible liquidation figure.

So, here is what I come up with assuming a conservative EBITDA muliple of 11X can be obtained for each asset. I used the most recent 6 month EBITDA figures from the investment pack. Note we are expecting much more than this caculates for DBCT.

I have to put in an EBITDA multiple of 9 before Beppa is in danger.

I welcome all input. I would like to make this more accurate.

 

[nathanblack]

WOW very informative there sharky. Good work. Shows there is quite a buffer of NTA. And i think historically Port sales have/can achieve multiples of about 13xEBITDA

cheers for your effort

 

[Largesse]

DBCT

(2x70.1mEBITDA) x P/E of 11 = 1542.2m
(2x70.1mEBITDA) x P/E of 12 = 1682.4m
(2x70.1mEBITDA) x P/E of 13 = 1822.6m


Ok so where are people getting these figures of $3Billion from?

are we perhaps getting a little head of ourselves?

 

[skc]

G'day BB, HY and all,

I've been trying to do a simple valuation spreadsheet for BBI, spurred on by BB/Melua from another place. I am going to go out on a limb here and say that BBI don't publish clear book values at asset level. There is some info on the value of various concessions etc, but no assurance that this represents full asset value. I am an amature at accounting - having done it at school - but at least I know the basics.

Anyway, book values aren't that interesting and are not a good indication for calculating NTA as they represent historical prices. IMVHO it would be better to use asset level EBITDA multples to estimate asset values and then subtract all debt to arrive at a possible liquidation figure.

So, here is what I come up with assuming a conservative EBITDA muliple of 11X can be obtained for each asset. I used the most recent 6 month EBITDA figures from the investment pack. Note we are expecting much more than this caculates for DBCT.

I have to put in an EBITDA multiple of 9 before Beppa is in danger.

I welcome all input. I would like to make this more accurate.

Good analysis. I can see total EBITDA from your calcs is ~$598m, whereas the investor pack (p.12) has total consolidated BBI EBITDA at ~$401m for the latest half year. http://www.asx.com.au/asxpdf/20090227/pdf/31g9swbrvm2g2h.pdf

Did you apply the appropriate ownership percent to each asset? What about corporate overheads (while not at asset level, the new owners will have to pay for them as well so they need to come out of the EBITDA)?

Anyway, applying 11x multiple to the published figure you get total assets of $8.82B - a bit less than the $10.7B of total debt. If we get a bit more generous and say full year EBITDA is $900m, and use multiple of 12x, EV = $10.8B which pretty much pays for all debt without much left over for equity holders. The current price for BBI is not without reason.

Having said that, the DBCT capacity expansion may boost EBITDA and create additional value.

 

[cpsharky]

Good analysis. I can see total EBITDA from your calcs is ~$598m, whereas the investor pack (p.12) has total consolidated BBI EBITDA at ~$401m for the latest half year. http://www.asx.com.au/asxpdf/20090227/pdf/31g9swbrvm2g2h.pdf

Well, i figured that the corporate overhead stuff won't really be needed considering we are liquidating individual assets in this analysis. This is an important point, so I hope i am right on this.

Did you apply the appropriate ownership percent to each asset?

I used the "proportionally consolidated" figures. Sounds like what I needed, but happy to be corrected on that.

What about corporate overheads (while not at asset level, the new owners will have to pay for them as well so they need to come out of the EBITDA)?

Please see above.

Anyway, applying 11x multiple to the published figure you get total assets of $8.82B - a bit less than the $10.7B of total debt. If we get a bit more generous and say full year EBITDA is $900m, and use multiple of 12x, EV = $10.8B which pretty much pays for all debt without much left over for equity holders. The current price for BBI is not without reason.

Having said that, the DBCT capacity expansion may boost EBITDA and create additional value.

Hopefully we can get some more input from HardYakka and BB on these figures. Anyone else with some decent accounting knowledge?

 

[banska bystrica]

DBCT

(2x70.1mEBITDA) x P/E of 11 = 1542.2m
(2x70.1mEBITDA) x P/E of 12 = 1682.4m
(2x70.1mEBITDA) x P/E of 13 = 1822.6m


Ok so where are people getting these figures of $3Billion from?

are we perhaps getting a little head of ourselves?

Buyers are not interested in historical figures. You have to use the ABN Amro 2009/2010/2011 figures on the fully expanded DBCT.
2009/10 EBITDA $224M
2010/11 EBITDA $241M

49 yr lease with 50 year option.

 

[nathanblack]

Buyers are not interested in historical figures. You have to use the ABN Amro 2009/2010/2011 figures on the fully expanded DBCT.
2009/10 EBITDA $224M
2010/11 EBITDA $241M

49 yr lease with 50 year option.

most buyers will take these figures with a grain of salt until they are actually achieved(how many times do we see downgrades?). perhaps somewhere in the middle is more appropriate.

it would certainly get rid of some of the cushion BBI have, but still should be fine.

 

[banska bystrica]

most buyers will take these figures with a grain of salt until they are actually achieved(how many times do we see downgrades?). perhaps somewhere in the middle is more appropriate.

You have no idea about how buyers value regulated ports then. What buyer who is purchasing a 99 yr lease on a regulated port uses historical figures when the expanded capacity is locked in?
This is getting very tiresome.

 

[cpsharky]

Thanks Banska, I will plug in a 6 month EBITDA of 115m for DBCT. Seems to me a fire sale would have trouble wiping out Beppa.

 

[nathanblack]

You have no idea about how buyers value regulated ports then. What buyer who is purchasing a 99 yr lease on a regulated port uses historical figures when the expanded capacity is locked in?
This is getting very tiresome.

what if they have over estimated the capacity? thats all im saying, i'd like to see them achieve capacity first. its a buyers market and as a holder of BEPPA I prefer to be ultra conservative in my figures.

 

[Largesse]

You have no idea about how buyers value regulated ports then. What buyer who is purchasing a 99 yr lease on a regulated port uses historical figures when the expanded capacity is locked in?
This is getting very tiresome.

Banksa your tone isn't appreciated. you are right, i don't have any idea how buyers value regulated ports, that's why i'm here asking these questions.
I think you are mistaking the questioning as pseudo-downramping, trying to get people to question their holdings, it's not. I have a genuine interest in taking what i consider a solid stake in BBI relative to my portfolio and i'm just trying to extract as much insightful information as possible.
Not everyone is as well informed as your esteemed self

 

[nathanblack]

Banksa your tone isn't appreciated. you are right, i don't have any idea how buyers value regulated ports, that's why i'm here asking these questions.

Sorry mate, but his response was as result of a statement i made. So your in the clear this time

 

[cpsharky]

Note that the main reason I did this analysis was becuase most (possibly all) NTA figures I have seen are based on assets at book value.

Book value is designed to be very conservative - basically valuing assets at their purchase price less depreciation plus any capital expenditure. If an asset has been owned for a while, the saleable value could be expected to be higher that this. On the other side of the coin, if assets are purchased in a boom but need to be sold in a downturn, then the book value might be larger than can be obtained in reality. But, that is one of the duties of the auditors; they will look carefully to see if any of the book values need to be reduced "impaired" to ensure they remain conservative. (No impairment in the recent BBI accounts.)

So, NTA figures calculated using book values are conservative, but really don't give us an idea of how conservative. That is why I think a valuation based on EBITDA multiples gives a clearer indication of where a company like this stands.

 

[Mitsimonsta]

Hi guys, lots said since I was in here on Thursday, but I would like to make a couple of points re BBI/BEPPA.

1) The sale of DBCT is being pushed as 'the saviour' of BBI. While this is not exactly the case, it will firm the balance sheet substantially and will bring confidence to the company, and therefore the equity within. BB has mentioned some other activities which we may see coming, I think the most important of these is a company renaming away from the negative connotations of BNB.

2) DBCT is one of the biggest, most valued coal terminals in the southern hemisphere. Now, while the output has not been stellar in the last year, the expansions have started to come online and the shipped tonnages are going up. It's a step in the right direction. EBITDA will rise as the total capacity rises.

3) Look at the customers that use DBCT. Who ships out of there? BHP and RIO.
BHP is looking for assets to leverage current operations after they withdrew their takeover bid for RIO. And if the RIO/Chinalco deal goes through, RIO will be looking to do the same. By purchasing something like DBCT, they more in control of their own destinies.

Right now, both companies are paying big dollars to a third party to load their coal. If they can save (conservatively) $75m/yr for their own product while adding $100M p.a revenue from other terminal users, then it starts making commercial sense to buy it. They would also have to look at other reserves in the area which would ship out of DBCT, but there is alot of coal in the region.

As I mentioned to a close personal friend of mine, it is my belief that is the FIRB gives the go-ahead to the RIO/Chinalco deal, then the sale of DBCT may get very interesting. Make no mistake, both RIO and BHP want to own DBCT.

 

[Tysonboss1]

write a couple of sentences saying why these are a good investment.
Please, someone?

Hi Julia,

Just to add my

I believe BBI has great assets that are producing solid earnings year round, these assets play an essential part in the economy and can not be replicated so their value is not going to disappear.

BBI have been serverely punished for many reasons that don't all make sense and has put fear into people when it should be giving them confidence.

The main reasons BBI have been spanked are,

• first and foremost is their assoiation with BNB,
• they cut their dividends
• they have a lot of debt,
• general bear market down trends

When I look at the above issues,

I see no way that their assoiation with BNB can affect their earnings and I feel the internalisation of management is a positive that will reduce outgoings longterm.

I see the cutting of dividends to BBI as a positive as it will strenghten the company and likly produce share price capital growth long term, and the differing of dividends to Beppa as a smart thing as Beppa is probally their lowest interest rate debt, so the money is better used clearing higher interest rate debt.

Yes they have alot of debt, But the refinancing timetable is by no means urgent and management are taking steps to prepare for it, such as cutting divs on BBI, differing divs on Beppa and making stratigic asset sales. Not to mention that by 2011 it will be a different world refinancing may be troublesome now, but it will be a different story by 2011.

 

[Tysonboss1]

Another interesting point to remember, $750,000,000 of the corp debt is the Beppa shares themselves.

So when some of the calculations have mentioned that BBI have $2.4 Billion of equity after debt has been paid, this is $2.4 Billion left after the Beppa units have been paid out there full $1 face value + interest.

So if you believe

1, that the world is going down the tube and Essential infrastructure assets with solid regulated earnings are going to lose all value.

2, Banks will never again lend money or refinance loans of any amount.

3, share markets will never again recognise value in companies and will continue the plunge for years into the future.

Then yes BBI and Beppa will be Poor investments.

How ever I believe,

1, Essential infrastructure assets will generally hold their value, and continue to produce solid cashflow.

2, credit markets will free up again, and banks will be looking to loan money to companies esspecially those with contracted regular income.

3, and that eventually investors will return to the market and companies that continue to produce solid earnings will return to valuations that are more realistic.

The way I see it is that BBI are reshaping themselves into a leaner, fitter company.

I can see that given the aggresive debt reduction under way + a couple of asset sales BBI will beable to resume distributions at levels not to far off their current share price and the company should be re rated so that these divs reflect at least a 10% yeild.