BBI - Babcock & Brown Infrastructure

not a positive news at all.
the market is now flooded with infra assets.
it would no doubt put pressure on valuation.

Flooded? Isn't thAt a bit too strong of a word to use? What other assets are there? And you still have to factor in quality of the assets. Although I see what you mean, there's more choice available to the limited buyers, isn't dbct meant to be a great asset. Quality over quantity

The announcement of the QLD Gov asset sell off also said it was planned for a staged sell down over 3 to 5 years. Many other things could happen in that timeframe. DBCT is on the auction block now.

fureien said:

Flooded? Isn't thAt a bit too strong of a word to use? What other assets are there? And you still have to factor in quality of the assets. Although I see what you mean, there's more choice available to the limited buyers, isn't dbct meant to be a great asset. Quality over quantity

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no its not too strong of a word. let me put it in perspective for you.
besides bbi's dbct and westnet:
- asciano's patrick container port
- asciano's pacific national coal
- jemena's eastern gas pipeline, qld gas & vic gas hub
- mac infra group westlink m7
plus 16bn worth of qld assets:
- qld motorways
- port of brisbane
- forestry plantations queensland
- qld rail's coal network
- abbot point coal terminal

all these infra assets in the market or coming into the market just in AUS.

you say dbct is a quality asset. and what you think assets listed above aren't? its all relative to price.

put yourself in the shoe of potential buyer of these assets. utilities sector being the most leveraged sector of all - asciano, jemena, bbi and mac infra been trying to flog their assets since last year - more and more assets are coming into the market. as a buyer you would play this to your full advantage.

totally agree. in this economy and with the number of assets available, it is definately a buyers market. buyers can chose which asset they want and have more control over price. the longer negotiations take, the more desperate some companies will become as there bankers press on them harder. some companies are on the edge and a sale must happen sooner rather than later.

in BBI case, i think sales are the key to unlocking wealth and share price growth. but im not 100% satisfied that an immediate sale is required. they are meeting there debt obligations and i think if you look at the likes of ozminerals, banks can be forgivable and allow time to sort things out.

i do shudder to think what will happen to SP, IF come end of june there is no announcement on DBCT or the announcement is "still in negotiations with interested parties".

markets tend to panic.

on the flip side there does seem to be money floating around for infrastructure assets, so i guess it really is a wait and see approach.

mcahn1 said:

no its not too strong of a word. let me put it in perspective for you.
besides bbi's dbct and westnet:
- asciano's patrick container port
- asciano's pacific national coal
- jemena's eastern gas pipeline, qld gas & vic gas hub
- mac infra group westlink m7
plus 16bn worth of qld assets:
- qld motorways
- port of brisbane
- forestry plantations queensland
- qld rail's coal network
- abbot point coal terminal

all these infra assets in the market or coming into the market just in AUS.

you say dbct is a quality asset. and what you think assets listed above aren't? its all relative to price.

put yourself in the shoe of potential buyer of these assets. utilities sector being the most leveraged sector of all - asciano, jemena, bbi and mac infra been trying to flog their assets since last year - more and more assets are coming into the market. as a buyer you would play this to your full advantage.

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I agree with you that there are multiple proposed sales of quality infrastructure assets coming onto the market, however I do not think that this is going to affect the sale of DBCT materially.

Consider the situation, the QLD assets are proposed to be sold over the next 3 to 5 years, but for arguments sake lets cut that back to 18 months to 3 years. Also remember that these are regulated income streams, ie consistent subject to usage, CAPEX, inflation etc, the income generated does not have the characteristics of a normal profit.

IMO these additional assets will be sold when we are out of the GFC, ie in a more normalised market environment and this fact will be reflected in their Enterprise Value (ie multiple of EBITDA).

In the case of DBCT it is for sale in the GFC, and consequently there will be a discount built into its EV. If DBCT was sold when we were out of the GFC and BBI was not viewed as distressed then it would no doubt be able to command a higher EV.

So if you were a cashed up buyer knowing that the GFC is going to end in the next 12 to 18 months, inflation was going to increase due to the liquidity governments pumped into the system (and hence asset prices rise), what would you consider the more astute decision?

Would it be to buy in market circumstances where cash is king, the vendor is viewed as distressed and before the full impact of inflation hit and increased the price of the asset? Or would you wait and buy in a normalised market after inflation had taken off, this of course being reflected in the EV of that asset?

When you consider the income flows are regulated and investors are sitting on piles of cash which is not generating reasonable returns I know what I would do.

Cheers

hardyakka said:

When you consider the income flows are regulated and investors are sitting on piles of cash which is not generating reasonable returns I know what I would do.

Cheers

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screw BBI on sale price and terms of settlement? BBI need a 100% sale at above book value, and in a timely fashion. how long do you think due diligence on a sale like DBCT would take? and what regulatory approvals would be required? would the chinese be welcome buyers?

prices regulated by whom for whom - the consumer or the supplier.

when the"regulator" assesses prices what interest rate is used - a rate near the rba rate for a prime borrower or a rate say rba + say 10% which would apply for a borrower where there were doubts as to complying with loan warranties etc.

eyes closed by all on this critical issue re values.

hold beppa

mikes said:

prices regulated by whom for whom - the consumer or the supplier.

when the"regulator" assesses prices what interest rate is used - a rate near the rba rate for a prime borrower or a rate say rba + say 10% which would apply for a borrower where there were doubts as to complying with loan warranties etc.

eyes closed by all on this critical issue re values.

hold beppa

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DBCT is regulated by the Queensland Competition Authority. Refer to the below link for the latest update annual pricing review and the structure of the pricing is dealt with in the second document.

http://www.qca.org.au/ports/2006AUAmend/AARroll0910.php

http://www.qca.org.au/files/DBCT 2006 Draft Access Undertaking_Decision Jun06.pdf


Nathan-The latest sale release on the sale process is that it will be completed by 1st quarter 09/10, or do you know something that the market doesnt?

As regards screwing BBI, re-read my earlier post. It was clearly stating that a sale in the GFC would be at a lower EV than if the asset was sold in 18 months and hence would be at a reduced price.

hardyakka said:

DBCT is regulated by the Queensland Competition Authority. Refer tro the below link for the latest update on the pricing payable by customers. It is a pricing structure, interest rates is just one of many inputs.

http://www.qca.org.au/ports/2006AUAmend/AARroll0910.php

The you will understand the price setting structure.

Nathan-The sale latest release on the sale process is that it will be completed by 1st quarter 09/10, or do you know something that the market doesnt?

As regards screwing BBI, re-read my earlier post. It was clearly stating that a sale in the GFC would be at a lower EV than if the asset was sold in 18 months and hence would be at a reduced price.

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The pricing regulations exist to protect the consumer of overpricing, particularly in monopolistic environments(ie ports and transmission lines). But it benefits the supplier too, because they have a certainty about there earnings. And being a monopoly certainly helps asset sales.

i dont know any updates on sale process, like you, im waiting for the announcement end june for guidence. my question, for anyone that may know, still stands. That is being a regulated asset and key infrastructure are there extra hoops to be jumped through, particularly would chinese company require any goverment approval?

im not disagreeing with you, i total agree with your logic regarding discount for the current market conditions. im just thinking more conservatively regarding who has the power in any sale negotiations, not just with the price, but wether they buy 100%, 50% or another stake. also, the condition precedences that are set will be favourable to purchaser and some form of delayed payment term.

by delayed payment, i mean a portion of the price may be dependent on certain performance figures. if targets are met a "bonus" is paid above agreed price, or if not met it is not paid.

im also more conservative with the settlement date, because you look at ozminerals or rio and a host of others including BBI powerco sale. hiccups do occur and renegotiations take place, thats why im particularly interested in any government approval that maybe required.

despite all this, my thoughts are ultra conservative and i still see tremendous value in the stock (both BBI and BEPPA) at current price. risk versus reward. im very bullish. my calculations say that if a sale fell through(no indication that it will) or is delayed(again no reason to think so, just being conservative) then earnings can meet interest repayments. not much debt is near term, and i think from ozminerals and BBP, it would be accurate to assume refinancing is likely if required.

disclosure: was 100% BEPPA. now 20% BBI

thanks for those price setting links

quick skim on price setting

basically initial for the first few years is 11.84 % roi on base value $855 million ( note this is not $2.5bn being spoken of) as at 1/7/04 + cap ex since

hence value worth more to buyers having lower cost of capital, hence worth much more to chinese or japanese buyers or other buyers with low costs of capital than for dicy capitalised buyers where banks have concerns and charge like wounded bulls.

that is unless there is sig gaming and the customers or the suppliers sometime in the future capture the temporary appointed regulator and how change the major pricing parameters within the long total period.

all a question on effectiveness of accountants for the supplier and the gaming prowess of the providers and the consumers and the appointment of who is the temporary regulator from time to time on the whole period of the venture.

this future pricing looks like a real dogs breakfast over a period of many years to come and a stubborn shareholder return and bonus motivated supplier who has most to win or lose will win out on balance with the gaming on deferred maintenance, safety claims,likelihood of consumers defaulting on payment, availability, service efficiency and gaming for further cap exp and required rate of return etc etc.

future value more determined by future inflation, construction cost and maintenance cost price indexes which could take off with a big spending government printing cash etc., and if construction /maintenance trade unions flex muscles etc etc. i now feel more confident. gotto keep these carbon taxes away from the coal industry and get more foreigners mining coal., though a problem if interest rates take off upwards in a big way

just as well not shipping trees or wood chips from great southern or timbercorp out so no bad debts on that score.

couild be another telstra where price regulator (captured by consumers)agressive and will not permit telstra to dictate to its competitors on access or earn what telstra sees as a proper return on capital hence the strike on land line cap exp and probably minimum maintenance and service deterioration until the consumers get mad - seen the price regulated tasmanian railways lately, service temporarily suspended for a long? time over derailment/safety etc issues and the employees stood down without pay asking the state tasmanian government to pay them whilst the service is not operating

hold beppa.

I would think the new BHP RIO alliance elsewhere will have some effect on the interested bidders list. If there is a BHP RIO consortium considering a DBCT purchase there a 3 new things in the mix. BHP may have $6 billion less cash on hand, RIO may have $16 billion more cash on hand. BHP and RIO will have other improving alignments of interest.

It all sounds to me like it would make a BHP RIO consortium a stronger bidder, but it could also be that the other deals may be an effective distraction from the $2 billion DBCT sideshow.

hey,
Just curious of whether people are willing to say for what average they are positioned in BBI if they own it at all. I just jumped out thinking that BBI will be experiencing new low 7c levels again and thought i would consolidate current profits and pretty keen to average out at 7-7.2 cents???

Whats your position?

Stakes

Stakes said:

Whats your position?

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I think you are assuming everyone that reads your question is on the same strategy bus as you!

Better still, just come out with it and ask us what the price is going to be tomorrow at 3:45PM.

Best of luck with your trading!

Jez said:

I think you are assuming everyone that reads your question is on the same strategy bus as you!

Better still, just come out with it and ask us what the price is going to be tomorrow at 3:45PM.

Best of luck with your trading!

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BEPPA ONLY:

Bought $1000+ at 9.6c.
Bought $1000 + at 10.5c
Total, 21,500 at $2,150 = 10cents each.

Intentions? June 30 2012...

Despite others having serious doubts, I believe BEPPA is strong enough to be able to give me $1.20, or at least, close to it.... in a bit over 3 years.

I am not sure if I'll buy some more after the SP settles (currently, the MAK SPP, or the ANZ SPP would get my money before BEPPA does)... but, I'm not averse to it in like August 2009, assuming CP are met for Euroports, no bad news, and a good DBCT sale. Even then, if the SP is, say, 30c... I'd still be expecting $1.20 in 2012, or 400% ROI in less than three years.... Something I wouldn't mind chucking $2,500 on to pick up $10,000.

Failing that, if I'm sure I'll get $1.20 in June 2012.... I certainly would love to buy some January 2012 for 80c or so..... Pop $10,000 or so into, expect $15,000 back... which I see as a realistic hope.

In a perfect world, my $2,150 will turn into $25,800.
$2,500 in August will turn into $10,000
$10,000 in January 2012 will turn into $15,000.

=$36,150 profit, from an outlay of under $15,000.

In a perfect world ... (in reality, could easily only get $1/$1.10 instead of $1.20) (Hell, in reality, BBI could go belly-up, but I see that as unlikely... even then, I could easily get paid paid out $1.06).

Realistically, I expect the first thing^ to happen (too optimistic??)
The second may be a touch optimistic, but certainly a decent chance of that being the case!
And, the third is just really numbers I pulled out.....and doesn't take into account BEPPA dividends being paid out before 2012... and so is a bit pie-in-the-sky.... but, is still my best guess.

great post ricee, i wish you all the best, and i see you put some thought into your strategy and you are backing yourself. and you have taken a relatively safe approach, buying more shares as the price /certainty increases, and buying less at the higher risk end of the scale. good financial management/captial protection.

for me its harder to determine the average buy price because of my stategy. ive been trading the stock somewhat, buying low, selling after 20-30% gain, then buying an increased stake when it falls back again.

i currently own about $45,000 BEPPA (avg about 10c) and $10,000 BBI(avg about 7.4c). but these averages are strictly for the current parcel. i will probably sell BEPPA at 13.5c and BBI at 10c if it happens soon, then buy back in at lower. or wait as i expect i will have to until the announcement and hopefully gain much more.

although my average is quite high, my current $55k portfolio has been achieved by trading through an initial $20k. i havent traded the highs and lows perfectly and got in above the 2.4c/4c lows. and often sell before it goes even higher.

the one thing im trying to make sure of is that all my money is in play overnight, incase the sale announcement comes through. could still get caught out though, but i expect it late june so still time.

at the moment BEPPA/BBI is about 20% of my porfolio, so im a bit heavier than i like, but once the price stabalisers post announcement, one way or another, i will probably reduce and move that portion into another spec stock. the rest of my portfolio is long term hold, mainly bluechips.

cheers

I have 30,900 BEPPA @ 8.4c average. At the present time, I am happy to hold this amount against the rest of my portfolio (it's currently 30% of portfolio value) and wait for the announcements - good or bad.

As the price rises, you have flexibility. It all depends on your portfolios and financial goals. I am tempted to let BEPPA hit 25-30c, sell half and put that into something else. I may yet buy more if the SP stays where it is for another month.

Right now I am looking to invest elsewhere, and hopefully bring my holding of BEPPA to about 25% of portfolio value at current SP (12-13c range). That way when the SP rise comes, my weighting will not be quite so bad.

I have only ever looked at BEPPA as being a vehicle to drive some big growth in my portfolio in it's early stages. This is about my financial goals within my portfolio only. If I can get some large CG now, then my portfolio will grow more in the future.

Also holding CBA, FXJ, MAP, ORG and SHL.

As long as you noted the words:
'as long as CP for Euroports are met' .

Cheers, best of luck with yours as well.

I would have thought BEPPA was a long-term share... but, I guess if you can turn $20,000 into $100,000 (which is roughly what you will have done if BBI hits 16c and BEPPA 22c)... (possible if rumours of DBCT emerged, but no announcment), then it would be VERY tempting to take your profits, and I certainly can't blame you for doing so!

I'm in the UK, so day-trading is nigh' impossible for me-<and I have other things on my mind... which is a shame considering how good this opportunity is.

ricee007 said:

As long as you noted the words:
'as long as CP for Euroports are met' .

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While it will not be nice if it goes against us, I think that the cost is a drop in the ocean compared to the DBCT sale in all honesty. Sure, it may push the SP down, but that is an opportunity to sell beforehand and then buy more units afterwards.

ricee007 said:

I would have thought BEPPA was a long-term share... but, I guess if you can turn $20,000 into $100,000 (which is roughly what you will have done if BBI hits 16c and BEPPA 22c)... (possible if rumours of DBCT emerged, but no announcment), then it would be VERY tempting to take your profits, and I certainly can't blame you for doing so!

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Actually, if BEPPA hits 25c, then I have a 200% gain on it. Using your example above, I would have turned $20K into $60K.

Even in the above case, if I have spent $20K and have $60K equity sitting there, best to sell $20K worth, and put it elsewhere. Then what you have has cost you nothing, and then you just let it ride (within reason, stops in place but possibly not as tight as previously etc)

ricee007 said:

I'm in the UK, so day-trading is nigh' impossible for me-<and I have other things on my mind... which is a shame considering how good this opportunity is.

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If I had 100K units then daytrading them would be a useful thing. Nathan has much more in it than I do, by a factor of 10. It definitely makes sense then, but with my piddly $2.5K worth then the brokerage eats up most of your profits.

im not so much day trading. but my holding time is more a week or twon rather than months. there has been the odd trade that has happened within a day or so.

i typically manage to get back into the stock on the same day. sell in morning buy in arvo at discount, or switch from bbi to beppa and vice versa. but once i buy i hold until it gains 20-30%, maybe a day, week or month. sell. wait for drop, rinse, repeat. generally each susequent buy has been higher than the last, but still lower than my previous sell.

i actually didnt start out with the intention of trading the stock, just wanted to lock in some profit, then found myself in a position to re enter and profit.

i usually trickle my holdings onto the market in 100 and 150k parcels. i need very little % movement to profit including cost of brokerage, time cgt, etc

ofcourse there are time constraints and CGT payable.