BBI - Babcock & Brown Infrastructure

[random]

Helllo, perhaps you have not noticed but nearly everything is going down.
It is not just bbi.
Even the haloed Macqurie Infrastructure is dismal.
Look around, people are scared, they don't want to lose what they have left in the market so they are getting out.
Forget fundamentals and arguing about logistics. What is happening is happening because people are panicked.
Don't look for trends in graphs, don't look for logic when people are scared. Why? because there is very little of either sense or logic. For many this is a very new first time experience in the economy.
Don't make it more technical than it is. Cause all you have to do is look at human nature. Scared, scared and scared.

As bb said before, it doesn't matter if the sp goes to 1c but of course we hope that it doesn't.

The only thing that will make me rethink is if our free cash flow dries up or assets are sold tto cheaply.
Live with it and stop pi**ing in your pants.

 

[hardyakka]

I understand there are owners of BBi/Beppa who are keen to see the SP increase etc and derivatives of same lift their net worth but the chart says it all. Why get in until it turns around? A v shaped pattern is a very rare commodity and is usually temporary. Wait fo rthe base and upturn before committing your funds people or you may be left with no ammunition when the time comes to recover lost ground and further the advancement.

This thread is fast becoming a support group for the terminal imo (dont be offended, i am happy to be proven wrong in time. This is only my opinion and i am allowed to have one).

Abyss,

I appreciate your opinion and its clear that you place heavy reliance upon charting techniques. However I do consider that a chart is only one of many tools that can be used in evaluating an investment. In my experience not once has an investment decision been made solely upon the basis of a chart, however they have been relied upon to demonstrate things such as demographic trends etc.

I am in total agreement with the views expressed earlier that fundamental reliance is placed upon audited financials. Normally in a major investment decision the target also would provide access to due diligence materials such as management accounts, board papers etc. We do not have that luxury in the case of BBI.

It would be very interesting if you were able to point out significant facts from the financial and demonstrate why these are incorrect when viewed from a charting viewpoint. For example before the GFC many considered there was a negative correlation between equities and REIT prices, does this hold true in the charts? Does the same situation exist in the current markets when fundamentals have been thrown out of the door?

Only yesterday I was at an industry seminar where the spread between bank and sovereign debt was shown on a chart, for years it was reasonably constant, then went haywire in the latter part of 2007. This chart demonstrated an inherent weakness in charting in exceptional circumstances, ie the GFC.

But please provide a bit more support rather than "the chart shows it", many are just technically minded investors who seek facts to support a view.

Cheers

 

[alphaman]

Only yesterday I was at an industry seminar where the spread between bank and sovereign debt was shown on a chart, for years it was reasonably constant, then went haywire in the latter part of 2007. This chart demonstrated an inherent weakness in charting in exceptional circumstances, ie the GFC.

A chart is simply a graph of objective data; in your example it sounds like a graph of yield spreads. Are you saying the data are wrong?

 

[banska bystrica]

If they haven't got the $700M in cash for the BEPPAs in 2012 and the BBI share price is too low, they will offer more attractive terms to BEPPA holders to roll over for another period. The Directors have the power to do that so this nonsense of massive dilution in 2012 is pie in the sky uninformed rubbish. THERE WILL BE NO DILUTION.

Unless BEPPA divs are paid before then I dont think there would be too many acceptances of new terms. Whats the point of accepting a high interest rate if it doesn't get paid?

I am referring to the 2012 reset date for BEPPA. Interest payments will be well and truly being paid by then. They may not have the $700M in cash though for repayment of principle.

 

[hardyakka]

A chart is simply a graph of objective data; in your example it sounds like a graph of yield spreads. Are you saying the data are wrong?

If I understand your question properly the point is that prior to the GFC there was a consistent spread so a chart could be used to extrapoilate this accurately. In the GFC it is a totally new ball game and there is no relationship between the spread so extrapolation using a chart is meaningless.

To reiterate charting is only one tool of many, it is not the be all and end all.

Cheers

 

[alphaman]

In the GFC it is a totally new ball game and there is no relationship between the spread so extrapolation using a chart is meaningless.

Well, the chart was just reflecting what happened with the yield spreads. There is nothing "inherently weak" with the chart.

The weakness came from whoever decided that future can be simply extrapolated from the past and bet his house on it.

 

[banska bystrica]

Brendan said: "I wasn't 100% serious, if in the lead up to the SPARCS issue the cash is not available, the SP of BBI & BEPPA will presumably sink, and looking at it another way it does give potential buyers of BBI's assets more leverage to sort out a lesser sale price quickly in order to allow bbi to ward of dillution witht he proceeds.

I think some management guidance is necessary seeing the SP has fallen 30% following a relatively positive announcement. A simple, everything is still going as planned, talks are continuing announcement just to settle some nerves may be in order."

Well I might just ask all you good people to have a look at the CASH at hand balance as at Dec 31, 2008. SPARCS is not one iota of a problem.
As for BBI saying something about the 30% drop in share price, they should say NOTHING. They have already said everything less than a week ago. Do people want them to hold their hands? If they said anything now, the share price would get sold off even further. The market would see it as being too defensive. Let the market do what it wants to. Why should people worry about the share price today or tomorrow or next month unless you are a trader.

 

[hardyakka]

Well, the chart was just reflecting what happened with the yield spreads. There is nothing "inherently weak" with the chart.

The weakness came from whoever decided that future can be simply extrapolated from the past and bet his house on it.

I dont really think this is adding any value to the debate on BBI and BEPPA so lets just agree to disagree, I will rely on my own analysis and I assume you will rely on your charts.

Cheers

 

[dhukka]

Interesting that the company didn't write down the value of any of their assets at the half year. It is clear that the company paid too much for their assets as evidenced by the massive amounts of goodwill on the balance sheet (some of which has disappeared with subsequent sales) and the extremely poor returns they get form those assets using any measurement you like, such as ROE, ROA or ROIC.

If you want to make the claim that the assets in the balance sheet are valued fairly, you first have to believe that during an asset bubble driven by excessively cheap leverage that somehow BBI didn't get caught up in the fervor and paid sensible prices. A hard case to make in light of the fact that they were one of the biggest participants in the orgy of cheap credit and again, the excessive amounts of goodwill and other intangibles on the balance sheet.

Secondly you have to think that BBI management are hopelessly incompetent. Why buy assets that deliver returns that are worse than you can get by putting your money in the bank at 4.5% interest? This is not to say that the assets are of poor quality, just that management horribly overpaid, the cash generation ability of the assets does not justify the price paid for them. If BBI had paid sensible prices for assets that produced good returns, they wouldn't need to sell-off assets.

 

[skc]

Secondly you have to think that BBI management are hopelessly incompetent. Why buy assets that deliver returns that are worse than you can get by putting your money in the bank at 4.5% interest? This is not to say that the assets are of poor quality, just that management horribly overpaid, the cash generation ability of the assets does not justify the price paid for them. If BBI had paid sensible prices for assets that produced good returns, they wouldn't need to sell-off assets.

They are not incompetent, they were simply not acting in the interest of their shareholders. They acted in the interest of their masters (BNB the mothership) and their own bonus pool.

Some of these entities (including BBW and a host of REITs) warrant comparison with the mythical Oozlum bird (as suggested by a recent article in SMH) - a bird that flies in ever decreasing circle until it disappears up it's own backside (the word a_r_s_e is banned!!). http://en.wikipedia.org/wiki/Oozlum_bird

 

[banska bystrica]

Interesting that the company didn't write down the value of any of their assets at the half year.

Why should they write them down? BBI was one of the very few companies who did NOT "revalue their assets" UPWARDS in the bull market.
The auditors have been over them like a fine tooth comb and the result is ZERO IMPAIRMENT.
That's because the book value is "COST price + DEV costs - depreciation". VERY conservative and well managed assets outperforming in a global meltdown.
BBI's result was very solid. FCFx8 is 80c. NAV is $1. By any metric, the share price of 4.5c is very undervalued. I'm sitting on BBI and BEPPA. They are in the bottom drawer and they'll be sweet. Those who have faint hearts or wobbly knees, go and buy WOW.

 

[drsmith]

I hope they wern't the same auditors that signed off on the mothership prior to it's implosion.

An auditors signature is not always a reliable indicator of a company's prospects.

 

[dogby]

BBI was one of the very few companies who did NOT "revalue their assets" UPWARDS in the bull market.
...
That's because the book value is "COST price + DEV costs - depreciation".

That theory is swell for assets (like Powerco) that were bought many years ago (2004), and have had sufficient time to appreciate.

In fact saying that Powerco is being sold at book value or above, isn't saying much. I'd be very worried if Powerco could not be sold above its 2004 price.

However many of BBI's assets were acquired within the last year or so, at top dollar.

 

[banska bystrica]

If cash flow is not impaired, then why would the assets be impaired? These assets are performing. Look at the EBITDA figures. If people want to jump at shadows and look at every worst case scenario, then great. Let them keep selling their BBI/BEPPA to me at these prices.

 

[drsmith]

Let them keep selling their BBI/BEPPA to me at these prices.

Out of curiosity, have you been buying up more units with the most recent sell-off below five cents ?

 

[dhukka]

Why should they write them down?

Simply, because they overpaid for them, or at least some of them as evidenced by their dismal returns and large amounts of goodwill.

BBI was one of the very few companies who did NOT "revalue their assets" UPWARDS in the bull market.
The auditors have been over them like a fine tooth comb and the result is ZERO IMPAIRMENT.

That's because the book value is "COST price + DEV costs - depreciation". VERY conservative and well managed assets outperforming in a global meltdown.
BBI's result was very solid. FCFx8 is 80c. NAV is $1. By any metric, the share price of 4.5c is very undervalued. I'm sitting on BBI and BEPPA. They are in the bottom drawer and they'll be sweet. Those who have faint hearts or wobbly knees, go and buy WOW.

Faith in auditors, now that is a leap of faith. If these assets are so fantastic why such pathetic returns? Either they're not that great, management overpaid or a combination of both.

 

[dhukka]

If cash flow is not impaired, then why would the assets be impaired? These assets are performing. Look at the EBITDA figures. If people want to jump at shadows and look at every worst case scenario, then great. Let them keep selling their BBI/BEPPA to me at these prices.

Why should we look at EBITDA? Shareholders don't share in EBITDA, they share in NPAT and this company generates none, even if you take out hedging losses the company makes nothing.

 

[banska bystrica]

BBI make plenty. They make about 10c per share FCF annually. Obviously there will no dividend for the next year because they are paying down debt. The "loss" was a mark-to-market adjustment. The "loss" will never be realised.
On my numbers, NPAT in 2010 will be $180M and 2011 $220M. I'm a bit conservative as Wilson HTM have 2010 and 2011 NPAT at $193M and $234M respectively. That puts them on a P/E of less than 1.

What people are focusing on now are all the negatives and doomsday scenarios and I understand that because they are fearful and shell-shocked at what has happened in the last 9 months. I understand all that but feel it has created an enormous opportunity that we will probably never see again. This is the mother of all bubble busts and as such, the market has overreacted on the downside just like it over-reacted on the upside. Sure BBI has risks but but that's why it's 4.5c and not 45c. This stock is not getting re-rated anytime soon. However, the long term investor will be handsomely rewarded.

I bought a stock on the NASDAQ last night that is trading at less than cash backing and is debt free. Opportunities like those come up once in a lifetime. I took the opportunity, bought the stock and will throw it in the bottom drawer. If it's not a twenty bagger in the next decade, I'll give the game away. A $50K investment that I expect to be worth a million inside a decade.

 

[alphaman]

I'm not sure what you mean by FCFx8, but for the financial year ended 30 June 2008, BBI's free cash flow is negative. For the half year to Dec 08, also negative.

With the proceeds from the asset sale BBI should have positive free cash flow for this current half year, assuming BBI takes it easy on capex.

 

[banska bystrica]

That theory is swell for assets (like Powerco) that were bought many years ago (2004), and have had sufficient time to appreciate.

In fact saying that Powerco is being sold at book value or above, isn't saying much. I'd be very worried if Powerco could not be sold above its 2004 price.

However many of BBI's assets were acquired within the last year or so, at top dollar.

NGPL was the most recent purchase in 2007 and they paid 10.7X EBITDA. They got a bargain. SEC Gas transacted in the same year for 14X EBITDA. BBI did not overpay for their assets. The market perception is they did because of the BNB connection but the facts are they paid reasonable prices.
Euroports was a recent purchase yet they recently sold a portion for a tick above purchase price.
There is a lot of BS in the market and press about BBI. That's fine because it's allowing those who know what the real story is to keep buying at a 95% discount to NAV. That is just sensational value regardless of the risks involved. Everything has a price and BBI's price is a steal.