BBI - Babcock & Brown Infrastructure
- Thread starter roland
- Start date
Julia
In Memoriam
- Joined
- 10 May 2005
- Posts
- 16,986
- Reactions
- 1,973
I've just read the last few pages of this thread.
Could any of you who are holding BBI say why you have bought the stock?
Just curious.
Could any of you who are holding BBI say why you have bought the stock?
Just curious.
- Joined
- 28 November 2008
- Posts
- 1
- Reactions
- 0
BBI is still way under its real value. Hopefully the trend will keep going up Iam glad that i picktup a 100.000 of BBI
Julia
In Memoriam
- Joined
- 10 May 2005
- Posts
- 16,986
- Reactions
- 1,973
Thanks, marcelchilli, for your response. What do you think is its real value?
How have you determined this 'real value'?
- Joined
- 28 September 2007
- Posts
- 1,472
- Reactions
- 8
Hi Julia, I been a holder of BBI since November 2005 when I purchased at $1.55 and shortly after topped up at even higher prices.
Although they have paid some good distributions, naturally I have been aghast at the demise of their share price.
However I have used the sp weakness to average my holdings price down to about 16c, so I'm now close to break-even.
Take a look at the various postings of banksa bystrica on this thread in December 2008 for some of the rationale of why a recovery of BBI could be expected.
Hi Julia
I had been thinking of getting infrastructure stocks for a long time now, as they are a nice long term income producing asset and i believe that infrastructure in australia has been ignored and fallen by the wayside for too long. Now the Government is ramping up infrastructure spending i thought its probably a good time to get in on the wave.
After reading various posts regarding the fact that
BBI is not intricately connected to some of the other dubious BB entities
BBI had large shares of Quality assets
BBI has successfully sold off some assets to reduce debt
BBI has successfully rolled over its debt
BBI has been "unfairly" sold down in a "baby out with the bathwater" type sell down
i took the plunge and bought 100000 shares in various parcels ranging from 3c to 9 c over the December period
At those prices i felt that the only way was up given that the fundamentals seemed fairly solid
They are now one of the few shares in my portfolio that is significantly in the green at this time ;-)
Julia
In Memoriam
- Joined
- 10 May 2005
- Posts
- 16,986
- Reactions
- 1,973
Thanks for replies. I held BBI for a couple of years but sold when the SP started to fall.
I've just looked up the yield and am mindful of that saying "if it looks too good to be true, then it usually is". Herewith screenshot from E-trade.
How can BBI sustain this?
I have to say it's tempting!
I've just looked up the yield and am mindful of that saying "if it looks too good to be true, then it usually is". Herewith screenshot from E-trade.
How can BBI sustain this?
I have to say it's tempting!
Attachments
The short answer is they can't, the company announced in November that dividends have been suspended until further notice as posted here.
Stick with the satellites, stay away from BNB.............
Especially after reading this announcement
--------------------------------------------------------------------------
Sydney - Wednesday - January 7: (RWE Australian Business News) -
Babcock & Brown (ASX:BNB) believes that asset impairment charges will be
such that the company will be in a substantial negative net asset
position at 31 December.
This position encompasses the reclassification of "non-core"
assets on the balance sheet as "available for sale", in line with the
company's revised business strategy announced to the market on 19
November.
The impairment process is subject to finalisation and audit
review which will not be completed until closer to the scheduled release
of the results currently expected on 26 February.
As detailed in its announcement on 4 December and reiterated in
its response to the ASX on 6 January, the company is in discussions with
its banking syndicate regarding a debt for equity swap or equivalent
restructuring to stabilise the long term capital structure of the Group.
Any debt for equity swap or similar arrangement will be designed
to allow Babcock & Brown to continue operating its business and sell
assets with a view to reducing its overall levels of debt.
Any such capital restructure is expected to significantly
dilute existing shareholders, negatively impacting the value of equity.
Especially after reading this announcement
--------------------------------------------------------------------------
Sydney - Wednesday - January 7: (RWE Australian Business News) -
Babcock & Brown (ASX:BNB) believes that asset impairment charges will be
such that the company will be in a substantial negative net asset
position at 31 December.
This position encompasses the reclassification of "non-core"
assets on the balance sheet as "available for sale", in line with the
company's revised business strategy announced to the market on 19
November.
The impairment process is subject to finalisation and audit
review which will not be completed until closer to the scheduled release
of the results currently expected on 26 February.
As detailed in its announcement on 4 December and reiterated in
its response to the ASX on 6 January, the company is in discussions with
its banking syndicate regarding a debt for equity swap or equivalent
restructuring to stabilise the long term capital structure of the Group.
Any debt for equity swap or similar arrangement will be designed
to allow Babcock & Brown to continue operating its business and sell
assets with a view to reducing its overall levels of debt.
Any such capital restructure is expected to significantly
dilute existing shareholders, negatively impacting the value of equity.
Julia
In Memoriam
- Joined
- 10 May 2005
- Posts
- 16,986
- Reactions
- 1,973
Ah, as I said, too good to be true. Thanks, Dhukka.
I'm now more than ever puzzled as to why anyone would buy it.
You and me both. A company that loses money, has oodles of debt and doesn't pay any dividends and historically has a terrible return on equity, I wouldn't even call it investment grade. It will be interesting to see the accounts at the half year to see how much debt they are carrying after the asset sales and to see if their asset values hold up.
- Joined
- 11 January 2007
- Posts
- 791
- Reactions
- 1
And even if they did get out of the debt mire how can they possibly ever make any money given their business model is broken beyond repair now?
Belongs in the BNB thread i guess but you know what i mean.
- Joined
- 13 November 2008
- Posts
- 121
- Reactions
- 0
If you guys start talking about BNB as if they are BBI you are only going to confuse people that are fairly new to this thread.
Julia id advise you to go back a few pages or more and read what Banska has had to say about them with research facts he has posted and not just opinions and then you will get a better understanding of why most of us has bought the stock and the relationship between BNB and BBI.
Julia id advise you to go back a few pages or more and read what Banska has had to say about them with research facts he has posted and not just opinions and then you will get a better understanding of why most of us has bought the stock and the relationship between BNB and BBI.
One of the most strategically important moves for that matter would be for the independant managment of BBI to opt for a name change asap to clear the air in anticipation of our future prosperity.
There is certainly a major upside to this move sooner rather than later (hopefully in this quarter) .
If a company was ever to benefit from changing its name and code this is it and this is the time!
If this is possible under their articles of association or agreement with the parent however i do not know.
There is certainly a major upside to this move sooner rather than later (hopefully in this quarter) .
If a company was ever to benefit from changing its name and code this is it and this is the time!
If this is possible under their articles of association or agreement with the parent however i do not know.
- Joined
- 30 December 2007
- Posts
- 591
- Reactions
- 0
There are really two methods to assign fair value to a utility stock like BBI. I have looked at “NAV” using Sum of Parts valuation and FCF (free cash flow) and either method confirms BBI is seriously undervalued.
Net Asset Valuation (NAV) is approximately $1.30 based on an average EBITDA multiple for their assets of 11. This is supported by recent asset sales, namely Powerco and Euroports.
The net asset value as per BBI’s balance sheet takes into account depreciated historical cost of assets built or historical prices paid upon acquisition of assets. This valuation “may” be inaccurate because of the current market conditions with credit still pretty well frozen. Credit in Europe is still frozen. Banks are hoarding cash and not lending. The consumers are also not wanting to borrow. The situation is bleak. If this continues into 2010/11, BBI “could” be in trouble when it comes to refinancing at the asset level even though their free cash flow covers interest comfortably. If BBI have trouble refinancing in 2010/11 with their quality infrastructure assets, then indeed the world will be in an ugly state.
Moody’s has reduced its credit rating on BBI’s corporate debt to B2, five notches below investment grade. Such a low credit rating makes it difficult to refinance debt via the capital markets (as it shrinks the pool of potential lenders) and also increases the cost of debt markedly. It also raises a potential issue of reducing the credit ratings at the asset level. I expect operating cash flow priority will be given to debt repayment over repayment of the hybrids in order to restore the credit rating. Therefore, any dividend will be welcome in the next two years but not expected. A small dividend in 2010/11 is not out of the question if corporate debt is paid down to minimal levels. Let’s see the interim results on Feb 25 first. Then we will know more.
I continue to believe that the BEPPA at a price close to parity with BBI is a value entry point into BBI if you desire exposure to the BBI story. BBI at less than 4c was a steal, however, BEPPA sit senior to ordinary BBI units in a wind-up scenario (not for one moment do I think that is happening but you never know what the financial world will be like in 12 months time) and in dividend payment priority. Its dividend yield is very high at current market prices around 13c in the dollar, paying BBSW +115 basis points on a face value of $1 and although the dividends are currently not being paid they are not lost but are instead deferred and COMPOUNDED, and the BEPPA price should converge on the payout value ($1.04+) as 2012 approaches on the assumption that BBI remains financially viable. BEPPA really seem tremendous value at such a small premium to BBI. Buy them and treat them like gold.
Moving onto the SPARCS.
Pg 19 of the October investor pack shows the SPARCS liability. The full value is NZ$115.952M, and the notes to the balance sheet shows that half of this is considered a current liability consistent with the conversion timing.
It is a tough call on how BBI will handle the SPARCS maturing but they do have options. The options available to BBI are as follows:
1. Refinance with senior debt (as did DUET, ASX code: DUE), although this would be difficult / expensive / unlikely given the current credit rating,
2. Encourage SPARCS holders to remain with better terms (ie. far higher margin) on SPARCS,
3. Use operating cash flow or asset sale proceeds to meet redemption or
4. Convert into BBI units
Clearly, the last option would not be palatable to BBI security holders because of the dilutionary impact on BBI. I cannot see Directors choosing this option. I see Option 3 as most likely.
Regarding asset sales, the company are doing exactly what they said they would at the AGM. They have made part sales of assets (Powerco and Euroports), both above book value. A sale of 100% of DBCT at an EBITDA multiple of 11 or above would give them enough surplus cash to extinguish corporate debt and also provide cash to deal with SPARCS. See Page 16 of the October Investor Pack. There are ZERO corporate debt commitments beyond 2012/13.
On to free cash flow which is probably a more accurate reflection of BBI’s position rather than NAV since the market remains unconvinced that BBI’s assets have not been impaired. I disagree with the market but I have to accept the market’s current reluctance to value BBI at what I do. They are the facts. The market will not value BBI according to NAV. I’d be happy with 50% of NAV within 12 months. I'd sell a few then.
From the Investor Pack and taking into account the sale of Powerco and Euroports, I have ascertained that the following free cash flows per annum apply:
Powerco $10M
IEG: $33M
CSC: $3M
NGPL: $50M
AETD: $36M
DBCT: $115M
PD Ports: $45M
Euroports: $27M
Westnet Rail: $41M
Cap ex maintenance: -$60M
Total free cash flows of 300M. Therefore free cash flow per BBI security equals 12.5c. A conservative cash flow multiple of 6 gives a valuation for BBI stapled securities of 75c.
The average of 6 was taken using the following utility companies trading on the ASX:
SPN, DUE, SKI, APA, CIF, ENV and VIR.
BBI is currently trading on a P/FCF ratio of 1 which in comparison to other utilities, is a discount of 84%. Do the risks with BBI warrant an 84% discount?
NAV values BBI at $1.30
FCF values BBI at 75c.
Market values BBI at 12c.
Who is right? Time will tell but I’ll stick with somewhere between the factual fundamentals analysis of NAV ($1.30) and FCF (75c) rather than an inefficient, terrified, panic driven market price of 12c. The market was very wrong at 2.5c (thankyou market..) and it is still very wrong at 12c, in my opinion.
Net Asset Valuation (NAV) is approximately $1.30 based on an average EBITDA multiple for their assets of 11. This is supported by recent asset sales, namely Powerco and Euroports.
The net asset value as per BBI’s balance sheet takes into account depreciated historical cost of assets built or historical prices paid upon acquisition of assets. This valuation “may” be inaccurate because of the current market conditions with credit still pretty well frozen. Credit in Europe is still frozen. Banks are hoarding cash and not lending. The consumers are also not wanting to borrow. The situation is bleak. If this continues into 2010/11, BBI “could” be in trouble when it comes to refinancing at the asset level even though their free cash flow covers interest comfortably. If BBI have trouble refinancing in 2010/11 with their quality infrastructure assets, then indeed the world will be in an ugly state.
Moody’s has reduced its credit rating on BBI’s corporate debt to B2, five notches below investment grade. Such a low credit rating makes it difficult to refinance debt via the capital markets (as it shrinks the pool of potential lenders) and also increases the cost of debt markedly. It also raises a potential issue of reducing the credit ratings at the asset level. I expect operating cash flow priority will be given to debt repayment over repayment of the hybrids in order to restore the credit rating. Therefore, any dividend will be welcome in the next two years but not expected. A small dividend in 2010/11 is not out of the question if corporate debt is paid down to minimal levels. Let’s see the interim results on Feb 25 first. Then we will know more.
I continue to believe that the BEPPA at a price close to parity with BBI is a value entry point into BBI if you desire exposure to the BBI story. BBI at less than 4c was a steal, however, BEPPA sit senior to ordinary BBI units in a wind-up scenario (not for one moment do I think that is happening but you never know what the financial world will be like in 12 months time) and in dividend payment priority. Its dividend yield is very high at current market prices around 13c in the dollar, paying BBSW +115 basis points on a face value of $1 and although the dividends are currently not being paid they are not lost but are instead deferred and COMPOUNDED, and the BEPPA price should converge on the payout value ($1.04+) as 2012 approaches on the assumption that BBI remains financially viable. BEPPA really seem tremendous value at such a small premium to BBI. Buy them and treat them like gold.
Moving onto the SPARCS.
Pg 19 of the October investor pack shows the SPARCS liability. The full value is NZ$115.952M, and the notes to the balance sheet shows that half of this is considered a current liability consistent with the conversion timing.
It is a tough call on how BBI will handle the SPARCS maturing but they do have options. The options available to BBI are as follows:
1. Refinance with senior debt (as did DUET, ASX code: DUE), although this would be difficult / expensive / unlikely given the current credit rating,
2. Encourage SPARCS holders to remain with better terms (ie. far higher margin) on SPARCS,
3. Use operating cash flow or asset sale proceeds to meet redemption or
4. Convert into BBI units
Clearly, the last option would not be palatable to BBI security holders because of the dilutionary impact on BBI. I cannot see Directors choosing this option. I see Option 3 as most likely.
Regarding asset sales, the company are doing exactly what they said they would at the AGM. They have made part sales of assets (Powerco and Euroports), both above book value. A sale of 100% of DBCT at an EBITDA multiple of 11 or above would give them enough surplus cash to extinguish corporate debt and also provide cash to deal with SPARCS. See Page 16 of the October Investor Pack. There are ZERO corporate debt commitments beyond 2012/13.
On to free cash flow which is probably a more accurate reflection of BBI’s position rather than NAV since the market remains unconvinced that BBI’s assets have not been impaired. I disagree with the market but I have to accept the market’s current reluctance to value BBI at what I do. They are the facts. The market will not value BBI according to NAV. I’d be happy with 50% of NAV within 12 months. I'd sell a few then.
From the Investor Pack and taking into account the sale of Powerco and Euroports, I have ascertained that the following free cash flows per annum apply:
Powerco $10M
IEG: $33M
CSC: $3M
NGPL: $50M
AETD: $36M
DBCT: $115M
PD Ports: $45M
Euroports: $27M
Westnet Rail: $41M
Cap ex maintenance: -$60M
Total free cash flows of 300M. Therefore free cash flow per BBI security equals 12.5c. A conservative cash flow multiple of 6 gives a valuation for BBI stapled securities of 75c.
The average of 6 was taken using the following utility companies trading on the ASX:
SPN, DUE, SKI, APA, CIF, ENV and VIR.
BBI is currently trading on a P/FCF ratio of 1 which in comparison to other utilities, is a discount of 84%. Do the risks with BBI warrant an 84% discount?
NAV values BBI at $1.30
FCF values BBI at 75c.
Market values BBI at 12c.
Who is right? Time will tell but I’ll stick with somewhere between the factual fundamentals analysis of NAV ($1.30) and FCF (75c) rather than an inefficient, terrified, panic driven market price of 12c. The market was very wrong at 2.5c (thankyou market..) and it is still very wrong at 12c, in my opinion.
- Joined
- 11 January 2007
- Posts
- 791
- Reactions
- 1
Appreciate your efforts and time Banska. I am sure there are a lot of stocks trading below a fair value assessment at the moment.
How does the market decide that a stock should have a market cap below their asset values? A mix of future value and sentiment is my opinion and that is something intangible and unfathomable with some companies. When some clarity and certainty arrives regarding the future of a company whether it be via dividend affirmation, commodity prices, financing, trade figures etc then the SP will move rapidly which is why you only need to own a stock for 10 days a year to tap the greatest profits however it is virtually impossible to know which 10 days you should own the stock hence the buy and hold strategy of most.
- Joined
- 30 December 2007
- Posts
- 591
- Reactions
- 0
There is no way BBI should be trading at NAV or FCF valuations in this environment BUT the question is what is a fair discount? The market is assigning 84% as the discount. I think that's ridiculous. 50% maybe is fair enough and big enough with regard to the risks. That would give a target price of between 37c and 65c.
BEPPA is another story. It could trade at 50c and still be way undervalued based on current hybrid yields and the BBSW rate. I'm still accumulating BEPPA having secured a good amount of stock at 8.5c on Christmas Eve. That was money for jam with BBI at 9c. When BEPPA trades at parity with BBI or below, it's buy big time. Anything up to 5c higher than BBI is value for BEPPA.
BEPPA is another story. It could trade at 50c and still be way undervalued based on current hybrid yields and the BBSW rate. I'm still accumulating BEPPA having secured a good amount of stock at 8.5c on Christmas Eve. That was money for jam with BBI at 9c. When BEPPA trades at parity with BBI or below, it's buy big time. Anything up to 5c higher than BBI is value for BEPPA.
- Joined
- 30 December 2007
- Posts
- 591
- Reactions
- 0
I welcome all opinions on BBI (for and against) as long as the argument is supported by facts. Let's get some healthy discussion going here.
