BBI - Babcock & Brown Infrastructure

[drsmith]

I bought another 100K at 7.2c and it closed 7c. That's fine. It's been a really fruitful day buying at 6.6c, 7.4c and 7.2c. Slowly chipping away at BEPPA and waiting for asset sales by June 30.

There's nothing fruitful about buying shares. The fruitful part only comes when the dividends are recieved and/or the shares are sold for profit.

I do hope you are not putting too many of your eggs into this speculative stock.

 

[Viva_Las_Vegas]

Ha ha ha great posts guys.

For the record I drink DECAF! LOL!

To be honest I purchased HFA as a day trade, I got side tracked took my eye off the ball, and the next day they tanked to 6 cent levels. So I never really looked into them as a company in long term views.

Since you have a high opinion of HFA (which I have it referred to as "HAS f*** ALL) I will look into them closer and see what they have got going for them.

Anyway back to bagging out BBI and what a rubbish stock it is

 

[drsmith]

f) Debt & financing-It is common knowledge that regulated infrastructure assets are highly geared because of their consistent cashflows. I expect this to continue. the banking industry may be tightening money supply now, but in time it has no choice but to lend to earn returns for shereholders. Yes they will be more prudent and cautious, wanting secure cashflows etc to service debt and quality security. The type of cashflow and security offered by blue chip infrastructure assets.

They have been highly geared due to fee hungry bankers and a credit boom. Depending on how the bust plays out there is also a real possibility that the assets heavily leveraged REIT's and infrastructure funds finish up in alternative hands at firesale prices with nothing left over for existing shareholders.

 

[Mitsimonsta]

Ah, a day trader. No wonder! That explains everything.

Since you obviously missed the boat, might as well go on a leisurely cruise for a while, see some sights, smell the roses. I can see a solid bottom being formed in both HFA and BBI and I think there will be some movement upwards soon, depending on general market conditions etc.

 

[banska bystrica]

There's nothing fruitful about buying shares. The fruitful part only comes when the dividends are recieved and/or the shares are sold for profit.

I do hope you are not putting too many of your eggs into this speculative stock.

I've got a few eggs in BBI/BEPPA.
Why? Because at the price I don't see it as speculative. In fact I see it as the opposite.

 

[drsmith]

I've got a few eggs in BBI/BEPPA.
Why? Because at the price I don't see it as speculative. In fact I see it as the opposite.

As an observer (and occasional contributer) to this thread though I do wonder why you are so passionate about defending BBI. In the end it's fate will rest not on what is said here but on what happens economically and on decisions taken by BBI itself.

 

[banska bystrica]

From the perspective of diversification that's fine if you have enough eggs to fill every house in the street.
As an observer (and occasional contributer) to this thread though I do wonder why you are so passionate about defending BBI. In the end it's fate will rest not on what is said here but on what happens economically and on decisions taken by BBI itself.

Diversification is a hedge for the ignorant. I rarely own more than four stocks at any one time.
Nothing said on here will determine where BBI ends up. That is true.
I'm passionate because I see a gem where others see a dog. When the tide goes out like this bear market has done, the sand will reveal many sparkling gems. At 5c, BBI is one of them. I like to share the joy and get people to look into stocks that the market has already decided is trash. I research many stocks but not often do they pass my own stringent guidelines.

 

[banska bystrica]

For those that may be interested, I got put in the sin bin for one month over the road. The moderators here are firm but fair..... the way it should be.

 

[cpsharky]

For those that may be interested, I got put in the sin bin for one month over the road. The moderators here are firm but fair..... the way it should be.

BB, you are actually listed as active over there. Here is good though, HardYakka seems to be having a hard time staying over there also... he should know better than to say hello to a moderator.

 

[hardyakka]

BB, you are actually listed as active over there. Here is good though, HardYakka seems to be having a hard time staying over there also... he should know better than to say hello to a moderator.

I think I am banned for life for saying hello to the mod bluedog, the name says it all for me. I stilll accessed it for a little while under another nick, but to be honest got nothing out of it, informed analysis simply does not exist there.

Cheers

 

[hardyakka]

They have been highly geared due to fee hungry bankers and a credit boom. Depending on how the bust plays out there is also a real possibility that the assets heavily leveraged REIT's and infrastructure funds finish up in alternative hands at firesale prices with nothing left over for existing shareholders.

REITS are a separate asset class and cannot be compared with infrastructure assets due to their differing characteristics, at the top level retail, industrial and commercial are affected by totally different economic factors.

Cheap credit was not a major contributory factor to the GFC, it was more the mis-pricing of risk. In simple terms yes there was cheap credit, but the risk premium attaching to the borrowers did not reflect their circumstances and business ie the quality of the lending risk. Lets not get into an irrelevant discussion on leverage, securitisation, governance and risk pricing. However I am happy to send you links to heaps of material ranging from ASIC and APRA to representations before senate hearings and OECD papers..but be aware they can be boring.

By its very nature a regulated asset is guaranteed a profit, normally by regulation/legislation. The steady boring guaranteed cashflows are why life companies love such investments, very simply they enable a life company to match policy liabilities against an income stream over the long term, ie 25 years plus.

So when you consider infrastructure assets are highly capital intensive and generally are monopolies with a steady legislated income flow you start to understand why they can be highly geared.

In my opinion I consider the chances of BBI going under are very remote. Whilst the B&B business was previously set up to generate fee income this is no more, but one thing BBI did well, they acquired superb assets.

So you may start to appreciate why I consider BBI will pull through the current mess it is in, slowly and step by step, which is their progress to date, and BBI/BEPPA will IMO start to reflect their true value. The first major trigger point I see as being the DBCT sale announcement, after which it would not surprise me if instos started taking holdings and the days of BBI/BEPPA below 20 plus cents will be a thing of the past, gone never to return.

Cheers

 

[doctorj]

Interesting post. I’m not sure I agree with your logic that could be loosely paraphrased as – it’s a good buy because life insurance companies like infrastructure (I suspect they like them because they’re treating them as some kind of low risk/high return pseudo bond), but I wanted to highlight a couple of points.

Cheap credit was not a major contributory factor to the GFC, it was more the mis-pricing of risk. In simple terms yes there was cheap credit, but the risk premium attaching to the borrowers did not reflect their circumstances and business ie the quality of the lending risk.

I think cheap credit and mispricing of risk is one and the same issue and certainly played a massive part in where we are today. At it’s most basic, credit is priced at a base rate such as LIBOR, plus a margin that is derived based on the ‘risk’ the loan represents. This is off topic – feel free to start another thread on this.

By its very nature a regulated asset is guaranteed a profit, normally by regulation/legislation.

Is this really fair? Sure, the regulated asset may have an inflation component built into the agreed pricing, but what if people don’t use it? For example, people may take a slower route to the airport or take public transport instead of paying for the use of a toll way. Then there is the issue that you don’t own a share of the asset, but a share in a company or trust that owns/administers an asset.

For me, the biggest issue with any company that is highly levered right now is their ability to roll the debt. Banks have ever shrinking capital to employ in making loans (each loan they retain risk on ‘consumes’ some of their capital) so they’re being forced to delever. A declining pool of capital means banks can and are being more selective in what they finance. A highly leveraged infrastructure project with optimistic revenue forecasts may not be on top of the pile. Even if these projects can access capital, it will be relatively more costly. Ultimately, more expensive capital will impact the economies of more marginal projects.

 

[Tysonboss1]

Is this really fair? Sure, the regulated asset may have an inflation component built into the agreed pricing, but what if people don’t use it? For example, people may take a slower route to the airport or take public transport instead of paying for the use of a toll way. Then there is the issue that you don’t own a share of the asset, but a share in a company or trust that owns/administers an asset.

.

BBI's assets are not toll roads, and are not subject to as much descreationary spending as you claim.

their assets are seaports, rail way lines, gas pipelines, electricity and gas distribution etc etc.

I customer may be able to choose which retail gas company they purchase their gas through, but the can't choose which pipline it runs through to get to their house,

If I mining company wants to rail their ore to the port in WA, then they must use west net rail, there is not a selection of railways all competing for business,

same with seaports, how easy would it be for a competiter to buy some coastal land and set up a rival sea port, nearly impossible.

 

[doctorj]

BBI's assets are not toll roads, and are not subject to as much descreationary spending as you claim.

their assets are seaports, rail way lines, gas pipelines, electricity and gas distribution etc etc.

I customer may be able to choose which retail gas company they purchase their gas through, but the can't choose which pipline it runs through to get to their house,

If I mining company wants to rail their ore to the port in WA, then they must use west net rail, there is not a selection of railways all competing for business,

same with seaports, how easy would it be for a competiter to buy some coastal land and set up a rival sea port, nearly impossible.

Sorry, I was speaking in general terms in response to hardyakka's general comments.

But I guess the same concept applies to the assets you discuss:-
- Reduced global demand for iron ore = less iron ore exported = less income for sea ports and rail
- People can use less gas by changing their behaviours, such as by wearing warm clothing instead of turning up the heat

Both of which will have flow on effects to the profitability of the underlying infrastructure

 

[Viva_Las_Vegas]

Looking for some explanation of todays announcement by BBI and BNB re change in holding, is it referring to this BBI or is it the BB International Limited?

 

[nathanblack]

not sure either viva. perhaps BB can shed some light.

but looking at the relevant changes in holding its an increase and not part of a sell off by BNB administrators. also the dates of the changes are quite old so not too releveant to the current situation, infact they overpaid quite a bit per share.

will there be downward pressure when administrators of BNB sell there holding? what is there current holding?

 

[nulla nulla]

not sure either viva. perhaps BB can shed some light.

but looking at the relevant changes in holding its an increase and not part of a sell off by BNB administrators. also the dates of the changes are quite old so not too releveant to the current situation, infact they overpaid quite a bit per share.

will there be downward pressure when administrators of BNB sell there holding? what is there current holding?

Personaly, i hope so. An opportunity to top up. Reality is the Administrators will probably find a buyer off market.

 

[nathanblack]

do you think BNB administrators are in a rush and would accept the current discount of 5c in the dollar or perhaps hold off for asset sales and hope to achieve 20cents.

if they sell off market it will still be at a discount and will be fully disclosed to the market and have a negative impact although maybe not so much. could even be a positive sign if the buyer is well known insto that is in it longterm. a sign of faith and could open doors to other instos. much to contemplate now.

 

[banska bystrica]

Interest Bearing Liabilities and Deferred Tax Liabilities

I have just commenced reading the investor pack, so excuse me if this has been answered later in the pack.

The calculation of Net Assets on page 12, shows that Net Assets have fallen from $3.09B at 12/07 to $2.36B at 12/08, a decline of $0.73B.

Total Assets have increased by $2.78B in the same period, but Total Liabilities have increased more, by $3.50B.

The two components that have contributed most to the increase in Total Liabilities are Interest Bearing Liabilities, which have increased by $2.26B and Deferred Tax Liabilities, which have increased by $0.67B.

I assume that the Interest Bearing Liabilities refers to the debt that was taken on to purchase the assets that caused the Total Assets to increase, but what are Deferred Tax Liabilities all about.

The decrease in Net Assets of $0.73B is comparable to the increase in Deferred Tax Liabilities of $0.67. Are Deferred Tax Liabilities something that will continue to rise, eroding the value of Net Assets over time?

1. Most of the fall in net assets are decreases in the value of derivative instruments ($453m) and depreciation ($86m) and

2. Deferred tax liabilities are one-off. They relate to acquisitions made in FY08.

 

[jonkey1995]

Hi BB,

just on tax deferred liabilities.

Tax deferred liabilities are a result of tax effect accounting.

If you held BBI when they were paying distributions they paid dividends that were not taxable due to the tax deferred component.

It would be difficult to explain how the total arises due to the complex interaction of international tax regimes throughout the portfolio.

Maybe the examples below can shed some light on how they arise:

In Australian Tax Law certain capital structural improvements are allowed special write-off (depreciation) allowances. These are usually not in the accounts as such but a tax adjustment. Therefore, you have received a deduction for tax. However, these allowances reduce the cost base of an asset, so when you eventually sell the asset you will make an increased capital gain. What the defered tax liability entry tries to do is allocate the income tax to the period it was incurred, except for the timing difference. Essentially you book the income tax expense in the current period and raise a liability (for a future period when the tax is payable)under the double entry book keeping system.

Other examples are where tax depreciation is greater than book depreciation. The tax law allows accelerated depreciation methods, where book values are more likely to reflect effective life.

Put simply, tax deferred liabilities and their opposite future tax benefits arise where accounting treatment differs from tax treatment and timing differences occurr.

With infrastructure investment, part of the lure, was the receipt of tax deferred income through accelerated depreciation. Essentally, income was either not taxable or become capital gains (once you received more tax deffered income than the cost base of your shares) therefore minimising shareholder taxation.

Over time you would expect tax deferred liabilities to increase until all accelerated write-offs were depleted over time. Probably clear as mud, but made it as simple as I could.

Cheers