BBI - Babcock & Brown Infrastructure

[Muschu]

I'm wondering if this stock is worth another look?
FNArena cites 6 buys and 1 hold on the stock. Average target price is $1.63, 42% above today's close. 12 month range is 82 cents to $2.03. Dividends at about 9%.
Are the debt level or P/E too high?
I would appreciate comments.
Thanks
R

 

[roland]

Definately worth a look in. I am already heavily into BBP and BBW, so I am not in a rush to grab BBI. Like the other BNB satellites, I wouldn't be looking for huge SP gains, more for the longer term deferred dividends.

BBI and BBW are probably in a better financial position to BBP, but I believe that BBP probably has firmer and less volatile assets with the power stations.

Personally, I think one of these 3 would be a good addition to your portfolio. I'd want to see sub $1.10 for BBI before it excites me

 

[Muschu]

Definately worth a look in. I am already heavily into BBP and BBW, so I am not in a rush to grab BBI. Like the other BNB satellites, I wouldn't be looking for huge SP gains, more for the longer term deferred dividends.

BBI and BBW are probably in a better financial position to BBP, but I believe that BBP probably has firmer and less volatile assets with the power stations.

Personally, I think one of these 3 would be a good addition to your portfolio. I'd want to see sub $1.10 for BBI before it excites me

Thanks for that. BBI seems to have been <$1.10 mid-April for 2 days. Maybe there's a good chartist out there who can interpret the trend?

 

[roland]

Thanks for that. BBI seems to have been <$1.10 mid-April for 2 days. Maybe there's a good chartist out there who can interpret the trend?

yeah, they got re-rated by Comsec and Aegis about that time too. From memory it was actually below a dollar some time back - should have got (sic) some then

 

[Nicks]

BBI has an awesome return at the moment. Like many say you dont buy this for SP gains (although at these prices you could well see SP gains to reflect a more realistic dividend return).

In other words, it is returning exceptionally high dividend yield. They are fairly well geared but this is what to expect from an Infrastructure company with regulated and stable income.

With a dividend yield at > 10% it provides a high level of stable income stream and BBI have reaffirmed their dividend for FY08 at 15c, FY09 at 16c and expect it to keep increasing thereafter.

 

[JackJackJack]

What are people's thoughts on BBI currently?
Looks to me like its getting punished due to the BNB, BBP scenario?

 

[ROE]

What are people's thoughts on BBI currently?
Looks to me like its getting punished due to the BNB, BBP scenario?

Stayed away
Dividend is funded by debt, the model is flaw and unsustainable
it's not if, it when they blow up.

 

[Tysonboss1]

Stayed away
Dividend is funded by debt, the model is flaw and unsustainable
it's not if, it when they blow up.

I don't think it is,... I have been trying to clarify it but I think the distribution is paid from the trusts operating cashflow before the profits of the company are calculated.

its like a company earning $100,000 paying $700,000 in distributions then declaring $300,000 in retained earnings. some people would look at it and say how can they pay $700,000 in distributions when they only earn $300,000 but its because the dividend comes from the operating cashflow before the eps is calculated,

Westfeilds is the same, their DPS has been higher than there EPS ever since they became a stapled security, same will APA and most other stapled securities.

 

[roland]

This is from the Aegis Research:

After an aggressive acquisition path, BBI has acquired around $8B of quality assets world wide. BBI's long-life, long concession, monopolistic underlying assets produce strong and stable cash flows, secured by regulated tariff regimes or contracted revenues. The company's distributions are underpinned by stable cash flow, without the need of refinancing, which we see as a positive long-term characteristic. We also see good potential for long-term earnings growth.

BBI has a portfolio of monopolistic and strong cash flow generating assets, which are diversified operationally and globally. The company has guided distributions of 15cps for FY08 and 16cps for FY09, which we consider to be strong returns on a risk/reward basis. We also see good share price upside as the stock price brings the yield to a more appropriate level given its risk profile. We are bullish on a 12-month investment horizon.

I don't believe that the distributions are from borrowings. The above indicates it's from cash flow.

 

[LRG]

i bought some recently at 1.11 then another batch at 79 cents to average down. originally bought for the fantastic yield. But if the model is flawed, buy paying dividends off borrowings then this is not good.
is there really a good income stream from the assests or not and how high is the ever increasing interest expense from borrowings.

what does one do keep buying more to get the avg entry price down?

look at virgin - VBA a few months ago $2.20s now just over 50cents - disaster due to fuel, borrowings profit heading south etc. Or, is VBA now a good buy - contrarian investing, ditto ABS etc??

 

[renim]

they've got great assets
infrastructure is not like airlines, its like airports
just ask the ships offshore at hay point

 

[roland]

I picked up some more BBI today at 0.695 and pretty happy with that. My average is now $0.7975, once the return of capital gets paid it will bring my average down to around 0.73.

I personally will be taking profits as it rises and buying back in when it falls. All the while keeping a parcel to apply the return of capital to, to avoid CGT.

I got burnt badly with BBP, but have still kept both BBI and BBW - neither of which have any funding problems and are asset based with income streams, so I am pretty comfortable with these 2.

 

[blaze87]

I don't think it is,... I have been trying to clarify it but I think the distribution is paid from the trusts operating cashflow before the profits of the company are calculated.

its like a company earning $100,000 paying $700,000 in distributions then declaring $300,000 in retained earnings. some people would look at it and say how can they pay $700,000 in distributions when they only earn $300,000 but its because the dividend comes from the operating cashflow before the eps is calculated,

Westfeilds is the same, their DPS has been higher than there EPS ever since they became a stapled security, same will APA and most other stapled securities.

the above part might not be correct, BBI earned net profit $112,951 for the year 2007. the reason they can distribute a total dividend amount of $203,998 is beacuse of the strucutre of the company. BBI acquires infrastructure and every year a certain amount is depreciated and amortisated, Depreciation and amortisation counts as an expenses and it impacts directly on net profit.
A simplified example. company A earns 1 million of revenue, Depreciation and amortisation comes up as 0.1 million. Capital expenditure and changes in net working capital is 0. Net profit= (revenue - Depreciation and amortisation) * (1-tax rate)-(which we assume as 30%). the final net profit comes up as (1-0.1)*0.7= 0.63 million.

however on the cash flow statement, free cash flow will come up as 0.63 million plus 0.1 million which becomes 0.73 million.

hence Depreciation and amortisation has caused a higher cash flow than earnings and also why such companies are able to distribute dividends higher than their earnings. Westfield is able to charge huge amounts of Depreciation and amortisation every year bcos of the same reason mentioned above. 'Depreciation and amortisation'

 

[blaze87]

1 worry with BBI is,
as stated in BBI Annual report 2007, page 133
it has a current(less than 1 year) expenditure commitments of $631,134.
it says that they have undrawn warehouse facilities of $1.3 million on pg 156 of BBI annual report. i'm not sure if we can offset the capex against the undrawn facilities but it would seem likely... Any accounting investor out there willing to clarify this?

 

[Tysonboss1]

the above part might not be correct, BBI earned net profit $112,951 for the year 2007. the reason they can distribute a total dividend amount of $203,998 is beacuse of the strucutre of the company. BBI acquires infrastructure and every year a certain amount is depreciated and amortisated, Depreciation and amortisation counts as an expenses and it impacts directly on net profit.
A simplified example. company A earns 1 million of revenue, Depreciation and amortisation comes up as 0.1 million. Capital expenditure and changes in net working capital is 0. Net profit= (revenue - Depreciation and amortisation) * (1-tax rate)-(which we assume as 30%). the final net profit comes up as (1-0.1)*0.7= 0.63 million.

however on the cash flow statement, free cash flow will come up as 0.63 million plus 0.1 million which becomes 0.73 million.

hence Depreciation and amortisation has caused a higher cash flow than earnings and also why such companies are able to distribute dividends higher than their earnings. Westfield is able to charge huge amounts of Depreciation and amortisation every year bcos of the same reason mentioned above. 'Depreciation and amortisation'

Ok, I get what your saying. The depreation is paper loss for tax reasons they are able to right down the value of plant and equipment etc. but it doesn't actually affect the cashflow revenve stream.

I have been trying to nut out how so many trusts seem to pay out more in earnings than they report as profit, and they seem seem to do it year after year, I didn't think the likes of westfeild would be constantly taking on debt to fund distributions.

 

[peter g]

Has anyone got any thoughts on BBI now stock price between 40c and 45c cents. with a revised dividend of 10c i dont think it can go much lower. It look s like a bargain to me. I got some at 41c yesterday....however if it break support below 39 im out.





PS i am a beginner

 

[roland]

Director's wife buying:

Nature of indirect interest - (including registered holder)
Note: Provide details of the circumstances giving rise to the relevant interest.
Margaret Helen Hall, wife of Leigh Loddington Hall, relevant interest by virtue of power to exercise voting rights or to dispose of securities

Date of Change 11 September 2008
No. of Securities held prior to change - 423,335

Number acquired
(a) 350,000
(b) 200,000
Number disposed - N/A
Value/Consideration
Note: If consideration is non-cash, provide details and estimated valuation
(a) $147,000.00 ($0.42 per Ordinary Fully Paid Stapled Security);
(b) $82,000.00 ($0.41 per Ordinary Fully Paid Stapled Security)
No. of securities held after change - 973,335



Got to be a good sign. I topped up at .33

The capital return today knocked back my average by a couple of cents.

 

[white_crane]

Down another 14%. Still think it's a good sign? I dumped mine, I should have done it earlier. Oh well, it was an education.

 

[DionM]

Mixed messages here, for me.

I own BBP, BBI and BBW from > 12mths ago.

So I'm hurting on all 3.

With BBP I bought more when it dropped to 60c and then 30c, believing in the business and all that (I work in the power industry). It is not pretty today, I can tell you. It is not worth selling.

Now I see the same with BBI - a business I believe in, but one the market is flogging hard because of the BNB association. I am tempted to buy more of BBI - I know it is not as geared as BBP and it has sorted out distribution guidance (and director's wife buying as above) ... but my recent experience with BBP has really left me very wary.

I think I'll be sitting on the sidelines for quite a time longer. But it is hard to fight the temptation to buy a company I like, at a discounted price, and average down. Very hard, I can tell you.

 

[Tysonboss1]

Mixed messages here, for me.

I own BBP, BBI and BBW from > 12mths ago.

So I'm hurting on all 3.

With BBP I bought more when it dropped to 60c and then 30c, believing in the business and all that (I work in the power industry). It is not pretty today, I can tell you. It is not worth selling.

Now I see the same with BBI - a business I believe in, but one the market is flogging hard because of the BNB association. I am tempted to buy more of BBI - I know it is not as geared as BBP and it has sorted out distribution guidance (and director's wife buying as above) ... but my recent experience with BBP has really left me very wary.

I think I'll be sitting on the sidelines for quite a time longer. But it is hard to fight the temptation to buy a company I like, at a discounted price, and average down. Very hard, I can tell you.

I bought some more BBI today at 28c they finished the day at 26c, My average is 52c because I bought in at 73c... who knows if it will drop further with the dividend guidence they way it is BBI at 28c will bring in fantastic cashflow and hopefully the share price will recover as the smoke clears from BNB's current bad times,

With BBP at 10c at guidence for a dividend in 2010 of 5c I am thinking of buying in, for a longterm hold.