BBI - Babcock & Brown Infrastructure

[roland]

The Central Bank of Norway now have a little over 5% of BBI. Nicely averaged (as per the chart). Their average is worse than mine

BBW saw The Children's Fund of UK do the same thing with BBW stocks as announced yesterday.

Both pretty cheap, given the expected returns in my opinion.

 

[DionM]

I saw that.

By god that's one helluva way to average down!

Dammit, I'm hovering over the buy button ...

 

[DionM]

Well I just doubled my holding in BBI.

Am I going to regret this just like BBP? Hrm. Time will tell.

 

[roland]

I saw that.

By god that's one helluva way to average down!

Dammit, I'm hovering over the buy button ...

I picked up some at .23 - brings my average down to .477. It's also only a couple of months to ex div again.

 

[roland]

Well I just doubled my holding in BBI.

Am I going to regret this just like BBP? Hrm. Time will tell.

hey DionM, notice how the depth has dramatically changed - nearly 2 to 1 more buyer depth .... good sign. Hopefully a little run up this afternoon.

 

[DionM]

hey DionM, notice how the depth has dramatically changed - nearly 2 to 1 more buyer depth .... good sign. Hopefully a little run up this afternoon.

Unless that little run-up gets it to a $1 (just above my new average, I bought my other lot at $1.54), I'm not getting my hopes up.

 

[roland]

Unless that little run-up gets it to a $1 (just above my new average, I bought my other lot at $1.54), I'm not getting my hopes up.

Oh, OK - I spoke too soon anyway, some bugger just dumped 2 mil of stock. I'm in pretty lightly really - I've got 3,000 every 0.05 or so from .64 all the way down to .23 so I can sell off as they go up.

 

[roland]

Some more good news for BBI with the successful refinance of AlintaGas Networks.

Pre open depth is building - should be a good day

AlintaGas Networks / Alinta Network Holdings Successful Refinance and Increase in Facilities

AlintaGas Networks, the largest distributor of natural gas in Western Australia, has reached contract close on the refinancing of Alinta Network Holdings' $165 million senior debt facility.

The $165 million facility (which is currently drawn to $124 million) has been refinanced with a $195 million senior debt facility, comprising a $175 million 3 year Term and Capital Expenditure facility together with a $20 million 1 year Working Capital facility. An average interest margin of 138 basis points per annum is payable under the total facility.
-- ends --

 

[roland]

Hey Dion, are "we" having fun yet? BBI up a little over 21% today.

I sold off a little BBW, and will let the BBI parcel I got at .23 yesterday if I can get .33 for it.


25% now

 

[roland]

Thought I would spread my misery around with all my holdings. Maybe my losses will brighten up someone else.

BBI -42.76%

 

[Tiles]

Just joined, so thought I should post. I've read through this thread and wish I had seen dhukka's posts before buying BBI. The debt/equity position is not good and the drop in the promised distribution confirms the company was borrowing to distribute. The attempts to sell assets (including 50% of Powerco) seems rational . The most recent news appears to be positive ie new agreement with BBN on governance. Is there any other good news?
Is there any news on asset sales? I note that the Norwegian Central Bank now owns 7.05% of the equity. Is that a good sign?

 

[BarryH]

This stock closed at 18 cents yesterday. It will be interesting to see what happens as we get closer to its forecasted 5 cent dividend in December

 

[Nicks]

This stock closed at 18 cents yesterday. It will be interesting to see what happens as we get closer to its forecasted 5 cent dividend in December

barry, dion and roland - do you think BBI is going to post a 5c (25%) dividend given its gearing problems? (this is a rhetorical question).

tiles - you should base your buy and sell on more than just what dhukka or anyone else says in an ASF post (although he is correct on this point).

 

[roland]

barry, dion and roland - do you think BBI is going to post a 5c (25%) dividend given its gearing problems? (this is a rhetorical question).

tiles - you should base your buy and sell on more than just what dhukka or anyone else says in an ASF post (although he is correct on this point).

I suppose that's anyone's guess. The BBI announcements and latest investor pack do not hint at any difficulty with funding or gearing. They are quick to promote the fact that they have 85% of their assets bring in Govt Regulated returns.

Ex Div is still a way off and a lot can happen in 2 months

 

[roland]

Aegis are suggesting a cut in distributions:

Investment Opinion
BBI's long-life, long concession, monopolistic type of underlying assets produce strong and stable cash flows, secured by regulated tariff regimes or contracted revenues. We see good potential for long-term earnings growth, but note the company has placed assets on the chopping block and we raise questions on the outlook for distributions. That said, BBI’s assets are quality and the security price does not represent its fundamental valuation.

BBI has a portfolio of monopolistic-like and strong cash flow generating assets, which are diversified operationally and globally. Despite the company's distribution guidance, we expect BBI to cut its distribution forecasts this year ahead of asset sales. The fundamentals of BBI’s assets remain and we retain our positive view on each of the company’s assets, noting specifically their growth potential, now contingent on external capital to achieve realisation.

 

[Nicks]

Roland check out their debt - I think its like $8 B or something. The company's market cap is only $400 mil.

 

[Nicks]

Ok, I have just spent the last hour going through BBIs financials as per the most recent annual report.

Heres what I gather:
- D/E ration of 3.6.
- Assets $14 B
- Liabilities $11 B
- Therefore Net Assets $3 B
- Most debt matures around 2011, some earlier, some later
- Assets are regulated and stable earners
- Assets are good quality infrastructure (unlike BNBs assets)

My Analysis:
In my opinion these are good assets to be in at this time. Their regulated return will be enticing as returns elsewhere re very low.

I like their selection of assets and the % diversification they have across their portfolio of assets. Their assets are of such that will always be used no matter what economic or global issues there are. That is they are relatively inelastic for the most part (of course there will be some reduction in demand given the macro environment but not so significant as other areas in the global economy). So one could say that their assets are reasonably defensive.

Their debt is obvioulsy too high. I hope that they funnel a larger % of their earnings into reducing this debt. I think shareholders should welcome a reduction in their dividend to accomplish this, as I believe this will then pay off in a big way by 2010+ when the annual dividends can probably be closer to about 50% of the current share price.

There is a risk that the over gearing they have done could bankrupt them, however this would require their assets to be revalued lower significantly AND their lenders to be reluctant to lend, or lend at a significantly higher rate. I see this as very unlikely given the stable regulated returns should provide sufficient security of repayment (and the loans for the most part are secured against the assets). The reduction of debt via lowering dividends and selling some non core assets should address this.

To conclude I think at current SP it now presents value and significant upside especially given the management and governance changes that are addressing the business model.

I originally sold out of BBI at 90c. I have now purchased some at 17.5c based on my analysis above. If I get a 5c dividend great, however if I get a 2.5c dividend and debt is reduced then thats great too. Capital gains should return once the gearing is reduced and by the time much of their debt matures in 2011 I think the financial issues that are currently affecting the global economy will have for the most part been sorted out (and for the better).

 

[drsmith]

On the balance sheet there is,

1) Close to $3.5b of intangable assets which is more than the shareholder's equity. Net tangable asset backing is therefore negative.

2) Between FYE 2007 and FYE 2008 assets have been increased by about $6b funded mostly by debt. One is left to wonder how realistic the prices paid for these additional assets are in the current environment. Over the same same period there is close to $1b of additional goodwill on the balance sheet.

The stock is 17.5c because it is now purely a speculative gamble.

 

[Nicks]

Dr Smith - the intangibles are Leasehold rights and Goodwill. These are assets that have value hence why they are on the balance sheet, albeit intangible.

The leashold in Qld is fair valued at 300m based on the revenue, and the UK Statuatory Harbour Authority's value of 1B doesnt seem unreasonable. They would have used discounted cash flows to value these and I do not have a problem with these valuations based on the revenue.

The aquisitions were all in areas related to their core business, and with the largest aquisition, Alinta, it was funded with security placements at $1.02, not debt. So effectively they got the Alinta assets very cheap considering it was paid for with shares that are now worth 0.175c. Im sure the Alinta assets are now worth alot more than that. So effectively the Alinta aquisition (which is by far the largest) has proven very net asset positive at current SP values.

 

[drsmith]

Nicks,

I hope the share price does improve for both yourself and the other investors in this thread. That being said the balance sheet alone is enough to put me off in the present environment.