BBP - Babcock and Brown Power

[prana]

I was on the call today.

The reporter from SMH caned the CEO basically asking him to step down, right on Phil's tail. This blowout of additional $275M was well uncalled for - yeah not very good string of events. Still, management was not entirely clear on whether to cut distributions or sell assets either way, but says their finding their way. it does sound like their biased towards selling of AlintaAGL assets. Given August as the financial raising target....

 

[the barry]

Down another 20% today, should have listened to my own advice.

I hate turning a paper loss into a real one, but this is another lesson, should have minimalised my losses much much earlier.

Actually reading Nick Radges book now and it's such an obvious thing after it's pointed out - you don't have to always be right, accept the wrongs and minimilise losses. I'm in too deep now but that's what happens....

Yeah mate, but what happens if it drops another 20 percent come monday. Never in to deep to cut your losses. No point throwing good money after bad. I only have a small holding so am not to fussed to see where it pans out, but things look funky at best.

 

[vishalt]

I suppose "wow" at the way this was handled by BBP.

I feel sorry for the unit holders. How much gearing does BBP have exactly? I know SP Ausnet has 58%, and thats gone up from 56% last year lol and I don't like that much gearing.

 

[Miner]

With expected yield pattern should BBP offer an opportunity to buy ? Almost 59% drop down in three days. With DJ fall on Friday probably market will whip shares like BBP all the more on Monday ? Any comments from people who have done good research on BBP please :

Reproduced some of the research reports from Bell Potter Security on 23 May 08. Should we rely on their BUY reiteration or the higher risk equity proposition ? They have maintained the BUY recommendation based on what ? Ego or not to admit its fault of a poor understanding the trend from BBP ?

Any way with the copy right rests on Bell Potter Security the extract of their research is as follows :
D efensive assets, higher-risk equity Price target $1.35 (previously $1.46); Buy rating; higher-risk exposure[/U]We have completed a major review of BBI following 18 months of acquisition
activity. Despite a diversified portfolio of defensive and largely predictable assets,complex structuring and a significant debt portfolio mean that we now regard BBI (that is, as an ‘equity’) as a higher-risk exposure

Positive catalysts offset by risks; de-merger now may make senseBBI is currently trading on an FY10E FCF yield of 8.7%

Valuation: $1.57 (spot DCF); price target $1.35 (12-month DCF less 20%)

 

[SenTineL]

I'd say it's a good buy at the moment.

But for me I'm out of there. Clawed back 10% today - sold at the high for the day. I was looking at offloading some of my holdings so got rid of the underachievers, this was one of them.

How are you going Roland, still trading this one?

 

[roland]

I'd say it's a good buy at the moment.

But for me I'm out of there. Clawed back 10% today - sold at the high for the day. I was looking at offloading some of my holdings so got rid of the underachievers, this was one of them.

How are you going Roland, still trading this one?

Hey SenTineL - hope you didn't suffer too much on this one. As for me, I dumped a stack at $1.49 and $1.25, bought them back at $1.13 and sold today at $1.22 (missed the high).

That's softened the blow a little, still in too deep to take a mega hit. I'll be trading my way out. If they hold the dividend, I'll be OK

 

[roland]

From Yesterday's Comsec Research

Babcock and Brown Power: It’s going to be tough
Last traded: $1.27 Sector: Utilities Market cap: $922m
REDUCE / UNDER PERFORM Valuation: $1.96
Summary of previous report dated 26/05/08

What’s new?
Babcock & Brown Power (BBP) has found itself in a vulnerable position due to a combination of a high priced acquisition (Alinta), challenging credit markets, and commitments made to fund and build power stations.

BBP must negotiate and execute on a number of initiatives in sequential order to shore up its financial position by August:

• Refinancing worth $2.7b (closure expected within next few weeks).
• Corporate debt facility worth $0.36b (closure expected August 2008
• Project finance facility for Tamar Valley (completion expected August).
• A shortfall of $275m must be funded by August 2008.

Sale of Ecogen assets preferable
While BBP hasn’t completely ruled out an equity raising to fund the $275m, the sale of assets looks more likely and ultimately is preferable.
BBP can easily secure the shortfall by selling one of the two Ecogen power stations with the added benefit that net operating cash flows will not be materially affected.

It is quite possible that BBP will successfully secure the necessary funds (BNB said it will act as “banker of last resort” for the $0.36b if necessary).
But when the board/management use phrases like the “ground is moving underneath us”, and given the number of initiatives that need to be executed over short period of time, there are clearly significant risks.

So while BBP looks extremely cheap at these prices, we remain cautious and retain the REDUCE / UNDER PERFORM recommendation.

Our valuation of $1.96 per security assumes a capital raising of $300m at $1.20 per security and includes a 100bps premium to the WACC to reflect the uncertainty associated with BBP’s capital structure.

 

[SenTineL]

holy smokes! down 32% at the moment.

am i glad i got the hell out of there when i did, it's getting smashed after today's announcement
good call by the barry, it went much worse than 20%

 

[Smurf1976]

BBP must negotiate and execute on a number of initiatives in sequential order to shore up its financial position by August:

• Refinancing worth $2.7b (closure expected within next few weeks).
• Corporate debt facility worth $0.36b (closure expected August 2008
• Project finance facility for Tamar Valley (completion expected August).
• A shortfall of $275m must be funded by August 2008.

I'm not sure what's meant by "completion expected August". There's NO chance that the plant will be up and running by then - sometime around March 2009 seems more likely. I assume you mean the financing is completed by then?

Well OK, there are 3 existing gas turbines there (open cycle) plus another open cycle one being built (running by December if they're lucky). But the main baseload combined cycle unit isn't due until March 2009.

Capacity of the existing units - 105MW in total (35MW each) when Hydro Tas ran them, BBP thinks they'll get them up to 120MW (probably realistic).

In recent times though they've only run one unit at half capacity (ie 20MW) and even then they've missed most of the profitable spot price opportunites for that little bit of production.

The new open cycle unit - about 60MW.

The new combined cycle unit - 203MW nominal.

They have a long term contract for baseload output from the combined cycle plant. The open cycle units are for trading in the spot market and covering their position when the combined cycle unit is out for maintenance.

Fuel for the combined cycle unit - gas only. They have a 15 year contract but I can't remember who it is with.

Fuel for the open cycle units - gas with diesel backup.

 

[roland]

Well .... what a nightmare for me this has been. I was trying to hold onto these to at least recoup something from the dividends.

What an absolutely stupid move that was. I dumped my 44,000 units today at .... yes, you guessed it - the all time low for the day. A 63% loss on a holding of 44,000 units adds up to an embarrassing loss.

So thank you BBP, I am close to being ruined.

 

[SenTineL]

you have my sympathies roland

What a horrible miss-management by BBP
dunno what else to say.........

 

[Miner]

At the close of session BBP shares were at 71 cents after lowered to 54 cents

Code Last % Chg Bid Offer Open High Low Vol
BBP 0.710 -21.11% 0.705 0.720 0.750 0.780 0.540 44,092,568

After close of business on 12 June Bell Potter recommended BBP as BUY. the closing price of BBP was 86 to 90 cents
If you would have bought BBP share listening to BBP recommendation then your loss would have been 20%.

When ASIC will discipline such incompetent brokers and their recommendations


Bell Potter recommended BBP with 12m price target A$1.24/US$1.18
Prior recommendation was :A$1.95/US$1.86
Price A$0.90/US$0.86 as on 12 June 08

 

[DionM]

I'm still hanging in with BBP.

I initially got in at 2.72.

Topped up at 90c Thursday.



Another stock for the bottom drawer. Getting pretty crowded in there though ... it joins ZFX, CNP, MAP, SUN, IAG to name just a few ...

Roland - sorry to hear it mate ... terrible.

 

[s3081402]

At the close of session BBP shares were at 71 cents after lowered to 54 cents

Code Last % Chg Bid Offer Open High Low Vol
BBP 0.710 -21.11% 0.705 0.720 0.750 0.780 0.540 44,092,568

After close of business on 12 June Bell Potter recommended BBP as BUY. the closing price of BBP was 86 to 90 cents
If you would have bought BBP share listening to BBP recommendation then your loss would have been 20%.

When ASIC will discipline such incompetent brokers and their recommendations


Bell Potter recommended BBP with 12m price target A$1.24/US$1.18
Prior recommendation was :A$1.95/US$1.86
Price A$0.90/US$0.86 as on 12 June 08

I know how you feel. But at the end of the day you don't decide to buy a stock based on broker report. The choice is yours to make.

 

[$$Punt$$]

I know how you feel. But at the end of the day you don't decide to buy a stock based on broker report. The choice is yours to make.

Dow Jones went up 1.3% on friday. Let's hope price will rally on monday as bargain hunters swoop in on BBP. I don't think it will drop much further and sooner than later, the SP will have to move up as it had been heading south continously for a while now. Get it when its cheap. Its a gamble.

 

[roland]

Dow Jones went up 1.3% on friday. Let's hope price will rally on monday as bargain hunters swoop in on BBP. I don't think it will drop much further and sooner than later, the SP will have to move up as it had been heading south continously for a while now. Get it when its cheap. Its a gamble.

Yep, a gamble would be a good term for any further "investment" in BBP. Anymore bad news and it will get smashed again.

What if BNB are not able to refinance the outstanding shortfall - smashed
What if the repairs to the gas pipeline gets delayed - smashed
What if there are problems with the other power stations - smashed
What if, the most likely downgrade, on the dividend yield is more than expected - smashed

 

[Miner]

Yep, a gamble would be a good term for any further "investment" in BBP. Anymore bad news and it will get smashed again.

What if BNB are not able to refinance the outstanding shortfall - smashed
What if the repairs to the gas pipeline gets delayed - smashed
What if there are problems with the other power stations - smashed
What if, the most likely downgrade, on the dividend yield is more than expected - smashed

Hi Roland et al

Interesting thread of what if scenario

I am adding to your list

• What if auditors find out BBP put a real shoddy accounting practice by revaluating its assets and then leveraging it (Enron saga)
• What if there is an opportune buyer and makes a takeover deal without or part of the liability

of BBP ?

Cheers

 

[roland]

16 June 2008
BBP SUCCESSFULLY REACHES FINANCIAL CLOSE ON $2.7
BILLION REFINANCING
Babcock & Brown Power (ASX:BBP) is pleased to announce that it today
reached final financial close and settlement on the recently executed $2.7
billion BBPF1 debt refinancing facility.

Paul Simshauser, BBP CEO said, “The successful financial close of the
$2.7 billion refinancing represents a fundamental step in consolidating
BBP’s long term capital structure.

The next steps in finalising the BBP capital structure are the completion of
our announced asset sale program and finalisation of a corporate debt
facility for BBPH2 of up to $360 million.”

Well, what an absolute pathetic announcement, what has Simshauser said here that is not already known?

Where is the update on the gas explosion, and the numbers on impact to earnings?

What about the outstanding $360M Paul?

No one is going to buy an asset that doesn't produce income, so we will have to sell something that has potential to improve our non existant bottom line, which will put BBP deeper in the poo - all bad in my books.

Oh!, mother BNB will pull us through - if they are still around in a couple of months.

Well, if BNB gain more of BBP through outstanding debt, then BBP share holders could get maybe 10 cents in the dollar when BNB have to start selling off assets ??????

 

[Overreaction?]

Yea I aggree it does look cheaper now then before. Glad they finally announced they have the funding from the banks in their hot hands and B&B parent has given them another ~$A197m to fund any shortfall.

I wonder why they announced it after market. No one can get into it before the open tomorrow.

Thoughts?

 

[Overreaction?]

Facts of the announcement today:

1) Reached final financial close and settlement of $2.7 billion debt refinancing facility.

2) BBP and UBS, the adviser on the asset sale programme, have received a number of indicative bids, the total value of which, is greater than the amounts outstanding on the BBPH corporate facility.

3) Babcock & Brown (ASX:BNB) has advanced $190 million on market based terms to BBP to provide short term funding towards BBP’s previously announced funding requirements as disclosed to ASX on 23 May 2008.

The gas explosion was not material to earnings according to BBP and if the banks will still lend them $2.7bn I would tend to aggree with them.