BBI - Babcock & Brown Infrastructure

newanimal · 20 April 2009

I have a small holding of BBI I bought in at .11. Knew nothing about BEPPA at the time. Wish I had converted a portion earlier. The gap is now .026. Anyone expect this to fluctuate or just steadily widen from this point on and convert the sooner the better. Many thanks to the contributors of this enlightening thread.

banska bystrica · 20 April 2009

nathanblack said:
what if they have over estimated the capacity? thats all im saying, i'd like to see them achieve capacity first. its a buyers market and as a holder of BEPPA I prefer to be ultra conservative in my figures.

Apologies for the tone nathanblack. I tend to get frustrated sometimes.
We are in April (only a short time to the end of 2008/09FY). Equity markets look forward, not back. Same with any asset. The DBCT expansion will be completed by June 30 so it would be wrong for companies to be valuing DBCT on old figures. Serious buyers would be looking at what DBCT will produce from July 1 onwards for the next 100 years, not what DBCT made in 2008/09.
Remember that BBI will not be selling DBCT unless they get a great offer, not just a good offer.

banska bystrica · 20 April 2009

Largesse said:
we got a link to this broker report?

Largesse,
If you send me a PM with your email address I will email you a copy of the report. ABN assign fair value of $1 to BBI but have a target price of 5c. They are applying a 95% discount to fair value. Beats me. That seems ridiculous. They use all their financial models to come up with a value of $1 then change it to 5c because of the GFC and lack of investor appetite. I imagine as BBI rises in price, they will revise their target price upwards (after the event as is typical of most brokers).

banska bystrica · 20 April 2009

From the Financial Review today regarding AIO's ports for sale:

"Some are convinced that the strong interest in the ports business will mean the the operation fetches healthy mid-cycle multiples of about 14 times EBITDA, rather that the end of cycle 11 times that had been feared amid the softening conditions in the sector."

So, the consensus is closer to 14 times EBITDA for ports. Now, DBCT is regulated and AIO's ports are unregulated so you cannot strictly compare, however, if we take 2009/10 EBITDA for DBCT of $224M (and that is a low figure in my opinion) and apply the EBITDA multiple quoted by the Fin Review we get a valuation range of $2.46Bn to $3.13Bn.
My estimate of $2.7Bn doesn't look too far off does it?

banska bystrica · 20 April 2009

Posted on here last month:
"The bottom line is that BBI has massive debt but it also has more than enough free cash flows to service that debt. Because of the fear, panic about the Babcock and Brown empire, we can buy BBI for 4c in the dollar and BEPPA unbelievably at 5c in the dollar. I've never seen a bigger bargain than BEPPA and I've been around equity markets for probably longer than a few of you have been alive.
If you don't understand BBI/BEPPA, then best to buy something else and leave the gems to those that do understand."

Well I hope some of you took the opportunity to buy BEPPA at under 5c. You have doubled your money in a month or so. It's still a trashed price and a bargain in my opinion. If you do your own research, you might have a greater understanding and not be tempted to sell too early.

mark_au · 20 April 2009

banska bystrica said:
Posted on here last month:

Well I hope some of you took the opportunity to buy BEPPA at under 5c. You have doubled your money in a month or so. It's still a trashed price and a bargain in my opinion. If you do your own research, you might have a greater understanding and not be tempted to sell too early.

I did, BB , though not enough, i have quite a modest holding compared to yours.
My wise "better half" likes to remind me to not count my chickens before they hatch, however the potential upside is that i will have my mortgage paid and be effectively debt free if BEPPA comes good at $1 .

Some good news on the TV this morning, the US thinks that the their recession has hit the bottom, at last perhaps we can get some confidence and good news stories to shake off the unjustifiable fear and panic in our markets.
I think the good times (sub 10cent BEPPA) may well be over.....

banska bystrica · 20 April 2009

mark_au said:
I did, BB , though not enough, i have quite a modest holding compared to yours.
My wise "better half" likes to remind me to not count my chickens before they hatch

It is wise not to count the chickens before they hatch. Just make sure you buy as many chickens as you can afford so that when they do hatch, you will have more than enough chickens to not even have to worry about counting them.
Everything is relative. My 4 million BEPPA may not be worth as much as your holding in relative terms. The guy who has his last $10 on a nag at Randwick is actually a bigger player than a multi-millionaire who has $100K on the same nag.

Mitsimonsta · 20 April 2009

mark_au said:
Some good news on the TV this morning, the US thinks that the their recession has hit the bottom, at last perhaps we can get some confidence and good news stories to shake off the unjustifiable fear and panic in our markets.
I think the good times (sub 10cent BEPPA) may well be over.....

I think you might be right about the sub-10c BEPPA days about to be over Mark. There is starting to be little whispers in the market with alot of us smaller holders jumping on, and until one big firm buys a substantial holding I cannot see any large jump (a doubling on 10c) coming any time soon. Big Corporates are still very risk adverse. Will take a very special/informed trader to grab a decent holding right now.

I will continue to accumulate until the price jumps, and then will simply hold what I have for as long as I can. I am hoping it will hold low until about the 20th of June when I will have some cash coming to me, and I can get in for more units.

After the jump, I will be looking to increase other shareholdings that I have. I hold some MAP, ORG and SHL that I wish to increase. Diversification will be the name of the game.

banska bystrica said:
My 4 million BEPPA may not be worth as much as your holding in relative terms. The guy who has his last $10 on a nag at Randwick is actually a bigger player than a multi-millionaire who has $100K on the same nag.

BB is once again correct. Mind you, I would love to have the cash to buy 4M units of BEPPA

I have been pouring as much cash into my portfolio as my meagre salary can afford. I am only new to active investing (6 months, had shares for a number of years as an issuer-sponsored holding). I've jumped in at the bottom of the market, and have amassed 10K worth of equity now.

If BEPPA doubles in price, I will be very happy. If it triples, ecstatic. I want to use it as the driver of my portfolio going forward.... the money that comes out of it in 2012 or later will fund other purchases.

Mitsimonsta · 20 April 2009

Down to 9.4c now, time for BB to find some cash and buy

BBI holding ground however.... interesting.

hardyakka · 20 April 2009

Tysonboss1 said:
Another interesting point to remember, $750,000,000 of the corp debt is the Beppa shares themselves.

So when some of the calculations have mentioned that BBI have $2.4 Billion of equity after debt has been paid, this is $2.4 Billion left after the Beppa units have been paid out there full $1 face value + interest.

So if you believe

1, that the world is going down the tube and Essential infrastructure assets with solid regulated earnings are going to lose all value.

2, Banks will never again lend money or refinance loans of any amount.

3, share markets will never again recognise value in companies and will continue the plunge for years into the future.

Then yes BBI and Beppa will be Poor investments.

How ever I believe,

1, Essential infrastructure assets will generally hold their value, and continue to produce solid cashflow.

2, credit markets will free up again, and banks will be looking to loan money to companies esspecially those with contracted regular income.

3, and that eventually investors will return to the market and companies that continue to produce solid earnings will return to valuations that are more realistic.

The way I see it is that BBI are reshaping themselves into a leaner, fitter company.

I can see that given the aggresive debt reduction under way + a couple of asset sales BBI will beable to resume distributions at levels not to far off their current share price and the company should be re rated so that these divs reflect at least a 10% yeild.

Two excellent posts Ty, they basically reflect my views on BBI.

When DBCT is discussed people mainly refer to the big mining houses as being the primary potential buyers. What is forgotten is that the pool of potential acquirers of DBCT is much bigger than people realise. This is because this is an ideal asset for a consortium of pension funds or similar to acquire. From their viewpoint it is a steady consistent regulated income stream to match against future pension liabilities, which as the population ages becomes more important.

So BB, I know you are estimating $2.7B plus, I am going to go out on a limb and I expect it to achieve $3B plus.

NB/ Got another 100k at 9,4.

Cheers

Mitsimonsta · 20 April 2009

hardyakka said:
When DBCT is discussed people mainly refer to the big mining houses as being the primary potential buyers. What is forgotten is that the pool of potential acquirers of DBCT is much bigger than people realise. This is because this is an ideal asset for a consortium of pension funds or similar to acquire. From their viewpoint it is a steady consistent regulated income stream to match against future pension liabilities, which as the population ages becomes more important.

So BB, I know you are estimating $2.7B plus, I am going to go out on a limb and I expect it to achieve $3B plus.

Of course, the more buyers you have, then the better the price will be. I feel that the prices bandied about here ($2.6Bn-$3Bn) can be achieved by BHP/RIO alone.

While regulated income is nice and exactly what pension funds are after, I am not sure if they will be able to afford DBCT against BHP/RIO that want it for operational and competitive reasons.

hardyakka · 20 April 2009

Mitsimonsta said:
Of course, the more buyers you have, then the better the price will be. I feel that the prices bandied about here ($2.6Bn-$3Bn) can be achieved by BHP/RIO alone.

While regulated income is nice and exactly what pension funds are after, I am not sure if they will be able to afford DBCT against BHP/RIO that want it for operational and competitive reasons.

Size is not a major problem for pension funds, their objectives are basically similar so what you will find is that no single pension fund would bid for DBCT of its own accord. Instead you would have a group of large pension funds bidding as a consortium.

Cheers

Mitsimonsta · 20 April 2009

I tend to worry that a pension/super fund or consortium would be able to bid enough against two cashed-up miners and be able to get the return required on the investment that they need.

If we look at a $3B figure to be paid for the sale, and take a very conservative $200M EBITDA (for a 15x multiple), then the yearly return on investment is 6.7% - is that enough for the pension funds? I really do not know, not familiar with the internal finances of pension/super funds. If it was a low-risk super fund then it would be a reasonable return. It would not be enough for a medium risk fund at all.

In real terms, BHP and RIO want DBCT for operational reasons. It will also make their own product more competitive (higher margins). The owner will merely be moving cash sideways between subsidiaries instead of it leaving.

I am not sure how access is determined, but I am sure that there would be some wriggle room in order to get their own product out the door quicker than a competitor. There could be cost savings in shipping wait time charges for example.

As for what you have put forward, I hope you are right. The more interested parties in purchasing DBCT, the better. There could be some very interesting proposals put forward including trailing payments in following financial years which could get a winning bid over the line as some cashflow down the track will be attractive for BBI. There could even be some stock-swap going on. It's all very interesting.

snowfree · 20 April 2009

Just a dumb question, if a company wants to take control of DBCT, why don't they consider buying out BBI, even paying off all the corp debt, it would still be less than 3 billion?

- I hold some beppa.

Mitsimonsta · 20 April 2009

Because the entire value of BBI is alot higher than $3Bn.

BBI is not just DBCT. They have numerous other Assets including gas pipelines and ports elsewhere. They also own some rail lines.

If you had researched you would know this.

fuzzie · 20 April 2009

I think what snowfree is saying is, at the current share price the capitalization of BBI looks to be about $170 million. If you could get everybody to sell all their shares for 7c a pop you'd be on a winner. The projected NPAT this year is $230 million.

Mitsimonsta · 20 April 2009

There are people still holding BBI that paid alot more than 7c per share. You would have to offer a hell of alot more than 7c per share otherwise you are asking them to take a loss just so you can profit?

Like that is ever going to happen.

Tysonboss1 · 20 April 2009

fuzzie said:
BBI looks to be about $170 million. If you could get everybody to sell all their shares for 7c a pop you'd be on a winner.

I get what snow free is saying, He is saying that taking over BBI would be cheaper than buying dbct out right because of BBI's cheap share price.

How ever this is not true.

Simply multipying the current stock price by the total shares on issue would not give an accurate cost of what a take over price would be.

for example,

Say XYZ company has 1 billion shares on issue, and today the only trade that went through was for $1 per share for a 1000 shares,... the market cap would state the company was worth $1Billion dollars.

How ever for a take over offer to be successful 90% of the shares must be bought, so to convince people to sell you there holding you would have to offer them a large premium to part with their stock.

An example of this from last year was BG's take over of QGC,.. QGC was trading at around $3.00 but BG's take over offer was for $5.75.

So just because 1% of shares are trading at a low level does not mean that you will be able to gain control of the other 99% at that low level.

P.S... Snowfree there is no such thing as a dumb question

fuzzie · 20 April 2009

Which is the reason people on this forum are generally buyers and raises the intriguing question about why there are still sellers at these prices. Risk and reward, fear and confidence.....

Then again I sold my BBP. They cost me a lot more. Then again why didn't BBW get flogged.

awg · 20 April 2009

fuzzie said:
I think what snowfree is saying is, at the current share price the capitalization of BBI looks to be about $170 million. If you could get everybody to sell all their shares for 7c a pop you'd be on a winner. The projected NPAT this year is $230 million.

The large debt profile of BBI would scare away many investors, as it has already.

Does raise the intriguing possibility of a takeover offer.

I have no doubt that some serious equity players would have at least run a ruler over this one

People may agree or not with BBs analysis, but would he be the only person undertaking this?

I doubt it

BBI - Babcock & Brown Infrastructure

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