BBI - Babcock & Brown Infrastructure

nathanblack · 1 August 2009

i guess what im trying to say is that if we are going to use 2010 or 2011 EBITDA multiples to value the asset, then i feel some guarantee that those EBITDA will eventuate needs to be provided to achieve top dollar.

banska bystrica · 1 August 2009

The regulator sets the price per tonne. The users agree to pay the price per tonne multiplied by the capacity of the port regardless of whether they use the full capacity. It's as certain as you will ever get when it comes to revenue forecasts.
Talk of "under-performance" when it comes to ports is only relevant when referring to unregulated ports like Teesport (PD Ports).
DBCT is NOT an unregulated port. The current users would be prepared to pay for a 100M tonne capacity so they will easily use the 85M tonnes. They have been screaming for years about not enough capacity at DBCT.
The EBITDA projections for DBCT are very reliable. You can almost lock them in.

nathanblack · 1 August 2009

"The current users would be prepared to pay for a 100M tonne capacity so they will easily use the 85M tonnes. "

i wasnt questioning demand, i was more questioning the ports ability to deliver on 85M t. If the infrastructure has teething problems it may only achieve 75M t for example, even though there are ships waiting.

ie the demand is there but DBCT cant supply the service.

Obviuosly, DBCT has been affected by cyclones in the past, i wouldnt want guarantees against anything like that. I only want to be sure it can and will handle the 85M t promised.

I know apart from the physical expansion, there have been handling changes which have reduced wait times and increased throughput, so i suspect it can deliver the 85M t or close enough not to worry too much.

So i guess its as good as a guarantee. Just thought it wouldnt hurt to factor in under delivery of output, and reward BBI if it can exceed projected capacity.

Something along the lines of :

actual capacity < 80M t : refund $100mil
80M t <actual capacity <90M t : no refund
actual capacity > 90M t : bonus $100mil

If DBCT projection are reliable, then it should be status quo, if they were cautious with the 85M t assumption we can be rewarded. I guess its a bit trivial as far as it would only increase the overall sale price by an immaterial amount and it would be 12months down the track.

mikes · 1 August 2009

dalrymple bay regulated by whom (price and performance) for whom, who appoints the regulator.

( i look at tls and worry as i see the regulator as politician influenced and the tls competitor users and the tls customers in my view are very very favourably considered - only tls remedy is a capital strike and deferring maintenance (service reliability anyone) on regulated areas if cant get sense out of the regulated pricing/conditions.

Remember the disaster which happened several years ago when the victorian gas transmission industry operators delayed some maintenance.

feel happier though with news of current events in qld and with bbi directors very closely connected to labour party luminaries. ( hope that selective donations to political parties and use of lobbiests are not banned and thankfully it is not china where there is a risk of being locked up).

also hope insured fully for a cyclone ( replacement cost, ongoing costs, loss of profits, etc etc.) and that the insurance premiums are fully paid up and are not in arrears.

if the chinese ( with their very cheap funds) bought the port, they could invite coal suppliers to quote on a delivered port basis and effectively bypass the regulator. - dont see why chinese cant buy as bbi owns ports in other countries and there is possibility of chinese involvement with iron ore ports in wa. - they would keep rio honest.

holding beppa only

nathanblack · 1 August 2009

mikes said:
dalrymple bay regulated by whom (price and performance) for whom, who appoints the regulator.
government. involves a tender process where people bid on how much they want to pay, then indexed to inflation, interest rates and other variables to come to a final price

( i look at tls and worry as i see the regulator as politician influenced and the tls competitor users and the tls customers in my view are very very favourably considered - only tls remedy is a capital strike and deferring maintenance (service reliability anyone) on regulated areas if cant get sense out of the regulated pricing/conditions.
theres no competition. TLS rents its lines on a wholesale basis to competitors. DBCT is strategically located and an alternative is not an option for the users.

Remember the disaster which happened several years ago when the victorian gas transmission industry operators delayed some maintenance.
dbct has just been expanded so is in excellent working order. to imply that they could cut back on maintainence as a bargaining tool is folly. i do see similarities however with the electricity transmission lines. they too are regulated, but during heatwave last summer couldnt cope, just hope dbct can handle maximum tonnage.

feel happier though with news of current events in qld and with bbi directors very closely connected to labour party luminaries. ( hope that selective donations to political parties and use of lobbiests are not banned and thankfully it is not china where there is a risk of being locked up).
Beattie regrets selling this port, always has. If it failed, the government would cop a fair bit of flak from BIG corporations for letting them down and costing $$$. Its in goverments best interest for DBCT to succeed

also hope insured fully for a cyclone ( replacement cost, ongoing costs, loss of profits, etc etc.) and that the insurance premiums are fully paid up and are not in arrears.
would assume this kind of insurance is compulsory. although there is probably a cap on loss of earnings

if the chinese ( with their very cheap funds) bought the port, they could invite coal suppliers to quote on a delivered port basis and effectively bypass the regulator. - dont see why chinese cant buy as bbi owns ports in other countries and there is possibility of chinese involvement with iron ore ports in wa. - they would keep rio honest.

holding beppa only

i think the chinese would be allowed to bid, certainly up to 49% anyway, but it would certainly require regulatory approval and we saw with OZL and the Wimmera asset it is possible to get rejected. i think we have enough globally successful local mining greats to bid for and own this asset.

Paragon1 · 1 August 2009

Can someone please tell me what the asset level debt is for BBI's Australian energy assets? The last investor pack lists about 1.3bn for various individual assets but I reverse engineer an approximate figure of 1.8bn. Also what are your EV's under various scenarios? cheers

cpsharky · 2 August 2009

banska bystrica said:
The Euroports sale ending up being 11.8X EBITDA. If they can get 11.8X for European ports that are struggling in the middle of a deep recession, then they should be able to get 12X EBITDA for DBCT. The major consortium bidding will not stuff around with a low ball bid knowing that QIC are also serious about buying a 49% stake in it. The consortium of major blue chips that are in there have the firepower and strength in their balance sheets to pay 12X. That gives a price of circa $2.8Bn.

I agree entirely. The 11.8X EBITDA figure you quote looks like it is based on the 2008 FY EBITDA of 63m Euro, an implied value of 354m and debt of 393m. So, not only is it about 12x EBITDA, it is 12X the EBiTDA at its peak. Even with the attached conditions this looks like BBI has done a brilliant job in an extremely difficult environment. The conditions sound like an excellent bargaining strategy for BBI IMHO. This is not simply a case of BBI taking on "all the risk". BBI gets a very good price now, and in return accepts some future risk. Anyone investing in BBI now is basically adopting the same attitude.

Fingers crossed for 13x EBITDA on DBCT. It really does look possible.

nathanblack · 2 August 2009

cpsharky said:
I agree entirely. The 11.8X EBITDA figure you quote looks like it is based on the 2008 FY EBITDA of 63m Euro, an implied value of 354m and debt of 393m. So, not only is it about 12x EBITDA, it is 12X the EBiTDA at its peak. Even with the attached conditions this looks like BBI has done a brilliant job in an extremely difficult environment. The conditions sound like an excellent bargaining strategy for BBI IMHO. This is not simply a case of BBI taking on "all the risk". BBI gets a very good price now, and in return accepts some future risk. Anyone investing in BBI now is basically adopting the same attitude.

Fingers crossed for 13x EBITDA on DBCT. It really does look possible.

until further details comeout RE:europrts sale, its really hard to determine the EBITDA multiple. after all the entire proceeds of sale went back into the business by way of acquiring further ports and paying down debt. in a sense the consortium have instantly got back 40% of the price in added value??? similar to 40% discount? how does that change the EBITDA multiple?.

and until BBI disclose the performance goal that will give the consortium up to 65%, its folly to consider it a good deal. especially being mates with BNB connection.

if it came out in the wash, that they pay a high price today but are virtually gauranteed 65% then the deal was a failure. however i suspect the perfance incentives are fair and realistic.

suhm · 2 August 2009

thanks for the help with the figures. For me BEPPA is worth 0 or $1.04 and the odds of the former are probably a lot less than the 80+% or so implied by the price but I think this one is gonna take awhile to play out and they're selling their best asset DBCT so your losing future upside for BBI unless they get a massive price for it, which I think is unlikely at the moment.

I'll probably regret it and good luck for those who hold, but I couldn't put enough money into it to make it worthwile and not be worried about it.

random · 3 August 2009

Its pleasing to read that Macarthur Coal is upping its sales to Europe of Coking Coal due to an increasing demand for steel. (Looking good for second half of this year definitely).

I'm not talking about the benefits for dbct here because its flat chat anyway (although its still great) but hopefully some of this coal will find its way to the ports in Euorports portfolio.

This added to existing trade volumes can only compound overall trade which is a good thing. Maybe things really have started to turn!

On a side point we keep hearing about the price negotiations of iron ore but little in the press about pricing on our premium coking coal and lets face it iron ore isn't much good to you if you can't heat it. Doesn't have a direct impact on us of course but helps the margin on our coal companies in the Bowen Basin.

Mitsimonsta · 4 August 2009

Nice movement in BEPPA prices today, BBI looks flat in comparison.

Possibly a good time to swap over I guess. Not bothered myself, hoping that BEPPA continues to rise.

Hold BEPPA.

fureien · 4 August 2009

is there a reason why beppa is rising compared to bbi?

actually i sort of know why bbi is dropping, but cant see why beppa would keep rising. its frustrating. i sold out of beppa and it kept rising, thinking i could buy back in when it drops again....come on people take profits!!

at least i can be content trading bbi for now. but i missed out on an extra 30% in profits in just 4 short days -_-

Mitsimonsta · 4 August 2009

I don't think there is any rhyme nor reason why BBP and BEPPA move the ways they do.

The market is irrational.

nathanblack · 4 August 2009

Agree, no reason behind it

Lets wait and see where it closes tomorow or end of week before we can decide if its a significant rise.

cheers

nathanblack · 4 August 2009

Some personal calculations i've made, may be wrong with some assumptions, very open for discussion. Im trying to figure out the likelyhood/merit of a beppa restructure in the future and the implications for BBI holders. im assuming at time of restructure Beppa=50c, BBI=25c. rounded beppa on issue from about 780mil to 700mil for ease with calculations and because some may not accept the offer.

What if we use NAV to do analysis?

about 2.4bil shares on issue. nav 90c/ share or $2.16bil

now assume full conversion of beppa at 1:2 ration. additional 1.4bil shares on issue for a total of 3.8bil.

but the NAV has increased by $700mil to $2.86bil, or an implied NAV/share of circa 75c

not bad for beppa holder, they have exchanged 1 beppa(50c) for 2BBI(25c each). the beppa had a value of $1 and the BBI share althought trading at 25c has an implied NAV of 75c ($1.50 for the 2BBI).

But its a bummer for BBI holders, because sparcs will dilute them and lower that NAV. impossible to calculate by how much because it dependant on DBCT timeframe. Worst case they convert at say 10c is 1:10, but could be as good as 1:4(25c).

also the euroports announcement had a writedown of $120mil, so the 75c NAV is already out by a bit.

i guess my main point is, sparcs can benefit from conversion to BBI, BEPPA can benefit depending on exact terms.

But if NAV will be 75c - sparcs(conversion) - euroports(writedown)- further possible writedowns(PD Ports), my best estimate for NAV/share range between about 40c and 60c post beppa restructure and depending on severity of sparcs.

thats before NAV/share is reduced further by any cap raising. and at 25c we issue 4 shares to gain $1 on the balance sheet. NAV will quickly evaporate.

if i own a BBI worth 25c with an implied NAV/share of 40c, theres not alot of upside is there? not a long term hold under those circumstances. perhaps a dividend play only?

if my logic is even slightly right, i think i'll convert my Beppa then sell. Not enough upside in BBI for me longterm with that Dilution of Nav/share.

nathanblack · 4 August 2009

If the economy improves and asset values go up 20% then the NAV/share will increase by same 20%, although technically BBI dont revalue there assets on the books.

But what about looking at it from and EPS basis? We could argue that earnings wont be drastically hurt, alot of lost revenues but also alot less interest payable. But with that many shares on issue can the EPS justify the SP and justify holding for income? If BBI is 25c and there are 3.8bil on issue, to earn 2.5c/share would require $450mil(will be substantially more depending on sparcs conversion price).

and if EPS was 2.5c, how much could BBI afford to distribute as dividend?

Im really keen on Beppa, but as you can see a bit bearish on BBI longterm. But short term 7c-25c is a nice reward.

current risk reward scenario:
BBI 7c NAV 90c...big tick

possible future risk reward scenario:
BBI 25c NAV 40c...cross

some of that descrepancy can be put down to the change in risk from high to quite low.

mark_au · 5 August 2009

BEPPA is showing further growth today, its really leaving bbi behind

Im sure that the announcement of the change of address isnt responsible LOL

Mitsimonsta · 5 August 2009

Yes Mark, I had a giggle at that one also. It just seems to keep going up - I am now in triple figures on it.

nathanblack · 5 August 2009

mark_au said:
BEPPA is showing further growth today, its really leaving bbi behind

Im sure that the announcement of the change of address isnt responsible LOL

LOL. maybe all the invoices are getting sent to old address, so they have lots of incomings but no outgoings.

in all serious its been a great spike. i got in and out within 24 hours and did pretty well.

mark_au · 5 August 2009

nathanblack said:
LOL. maybe all the invoices are getting sent to old address, so they have lots of incomings but no outgoings.

in all serious its been a great spike. i got in and out within 24 hours and did pretty well.

well that's the question, do i trade em and hope that they drop, or hang on for the longer term. My initial plan was to hold them for the long term.

Whats the odds they pull back allowing us to buy in again at a lower rate????

BBI - Babcock & Brown Infrastructure

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