BNB - Babcock & Brown

[Mr_T]

Re: BNB- Babcock & Brown: WHAT NOW???

How do you value a company?

So nearly everytime an SP falls, it is based on a change in the fundamental value?

Every time a SP rises/falls, it is based on a change of perception of its fundamental value. This might be due to something non-entity specfic (eg a perception that interest rates will change, change in economic growth) , or something specific to that entity.

Ultimately, share value is based on current profitability and future profitability. Since future profitability is uncertain and a matter of opinion, perceptions are what matter.

In a nutshell, a company's fundamentals is not as some would suggest, something that is certain and can be clearly seen. They are a matter of opinion. Those opinions are what is sometimes termed "sentiment". It is the market's interpretation of reality that affects share price.

 

[MRC & Co]

Re: BNB- Babcock & Brown: WHAT NOW???

Every time a SP rises/falls, it is based on a change of perception of its fundamental value.

Ultimately, share value is based on current profitability and future profitability.

The first paragraph is the exact answer. Hence, you use this 'perception' to buy in cheap on a company you (or a broker) think is undervalued. If the SP falls, a buy recommendation can therefore ensue, right?

Ultimately a share value IMHO is based on the companies current equity, current yield on that equity, and future growth expectations, extrapolated over the timeframe you are looking to invest. Discount for risk and desired return and compare to price. A change in the number of years these expectations are assumed, vastly changes the 'value'. Any slight change on any assumption, can greatly alter the 'value' and is a huge limitation of F/A IMO.

 

[Andy_aus]

Apparently you cant short BNB shares anymore.... they are maxed out

All the hedge funds have shorted them massively.

Maybe a risky buy oppurtunity

 

[Julia]

Re: BNB- Babcock & Brown: WHAT NOW???

Every time a SP rises/falls, it is based on a change of perception of its fundamental value. This might be due to something non-entity specfic (eg a perception that interest rates will change, change in economic growth) , or something specific to that entity.

Ultimately, share value is based on current profitability and future profitability. Since future profitability is uncertain and a matter of opinion, perceptions are what matter.

In a nutshell, a company's fundamentals is not as some would suggest, something that is certain and can be clearly seen. They are a matter of opinion. Those opinions are what is sometimes termed "sentiment". It is the market's interpretation of reality that affects share price.

Thanks, Mr_T, for saving me the trouble and saying what I would have.
I'd just add that - much as it may offend the purists - the value of a company's shares are what someone is prepared to pay for it. No different from anything else: houses e.g.

 

[jayinoz]

BNB Management must adapt and move with the current times. I feel they with sell their methanol assets to spice up their balance sheet and try to gain investor confidence. They need to restructure themselves greatly and they will. For all of those who are sticking with BNB- it should be for the long run.

In the short term they will be volitile between $4-$6 for the next few months. If the do fall, it will not be in the near future. They fundamentally need to change their biz model. Some of the smartest and brightest are appartantly trying to work on this right now. With management owning 40% is a huge enticement for them to adapt. Simply put a huge streamlining of the company and assets should take place. Change in fundamental focus on borrowings and terms of agreements.

Yet this will be an interesting week.

 

[theasxgorilla]

Re: BNB- Babcock & Brown: WHAT NOW???

Every time a SP rises/falls, it is based on a change of perception of its fundamental value. This might be due to something non-entity specfic (eg a perception that interest rates will change, change in economic growth) , or something specific to that entity.

I think that share price can fall and keep falling because people perceive that it will keep falling. Fundamental value or projections about the impact of macro or micro economics details can and do go out the window.

People/entities equate sinking share price * number of shares held against the ongoing impact to their balance sheet and decide that they'd rather have had yesterday's price but they'll take whatever they can get today for the number of shares held.

Curiously it's the same but opposite on the way up. Hence we get parabolic price activity during manias.

 

[roland]

The ABC today didn't paint a good picture for the short term future of BNB, but you really cannot ignore the fact that BNB do have a large number of quality assets. So long as they are not forced to firesale they do retain quite a capacity for income.

The announced level, at which the refinance review was to occur, was almost like a challenge for the shorters - a challenge that was easily achieved.

The wording of the repsonses from BNB, in my opinion, did nothing but add to the lack of confidence - rather a blase` don't care attitude. BBP did the same just a few days before, with firstly a error in the shortfall figure, then a stupid comment from Simshauser basically saying that they were spending all their time and efforts in financing efforts instead of getting on with business.

The arrogance of the responses from these two does nothing to support their cause or their shareholders.

I run my own small business and, in comparison, the way BNB operates seems to be close to the opposite to what I would have expected.

I no longer hold BNB - got out in the $20's, but have been stung badly with BBP and still hold BBW and BBI.

Could be some opportunity for a dead cat bounce but I will never put a cent back into BNB. Good luck to all holders and players.

 

[MRC & Co]

Re: BNB- Babcock & Brown: WHAT NOW???

Thanks, Mr_T, for saving me the trouble and saying what I would have.
I'd just add that - much as it may offend the purists - the value of a company's shares are what someone is prepared to pay for it. No different from anything else: houses e.g.

So you trade based on T/A, capturing this perception?

As you beleive value is already factored into the SP, so there is no need to 'value' a company?

It is not current profitability and future profitability, it needs context, where is it starting now? Relative to what?

Disclaimer: I rarely invest, only trade on T/A.

 

[roland]

Re: BNB- Babcock & Brown: WHAT NOW???

So you trade based on T/A, capturing this perception?

As you beleive value is already factored into the SP, so there is no need to 'value' a company?

It is not current profitability and future profitability, it needs context, where is it starting now? Relative to what?

I study as much as I can with any stock that I buy, but it sort of goes out the backdoor when the market decides to dump the stock.

Sort of makes a mockery of the technicals and financials when the SP does the opposite to what the numbers say.

 

[freddy2]

Price: Determined by supply and demand.
Value: Determined by sum of future earnings discounted for inflation and risk.

 

[Mr_T]

The wording of the repsonses from BNB, in my opinion, did nothing but add to the lack of confidence - rather a blase` don't care attitude. BBP did the same just a few days before, with firstly a error in the shortfall figure, then a stupid comment from Simshauser basically saying that they were spending all their time and efforts in financing efforts instead of getting on with business.

The arrogance of the responses from these two does nothing to support their cause or their shareholders.

The reason I got out of BNB at 14.50 is mainly for this reason - arrogant and narcissistic management that kept pretending there were no problems and kept giving themselves huge bonuses.

I don't mind people taking huge bonuses if they have genuinely earned, but this was getting to be anything but the case.

People in power who don't admit to errors and problems seldom end up producing positive outcomes.

In retrospect, BNB management weren't even that good in their heyday, just practiced the art of financial engineering which worked very well in those good old pre credit crunh days.

 

[MRC & Co]

Re: BNB- Babcock & Brown: WHAT NOW???

I study as much as I can with any stock that I buy, but it sort of goes out the backdoor when the market decides to dump the stock.

Sort of makes a mockery of the technicals and financials when the SP does the opposite to what the numbers say.

What mockery? Most true, purist F/A analysts did not want anything to do with the banking sector from what I have read, not that I am one myself.

But it is definatley very hard to value a company and very subjective, hence why I do not use it often. How can any profit forecasts be taken seriously in a time of such global trouble. Risky business, definately should still use stops (wider of course) IMO if you are going to invest, then again, many fundamental investors would disagree with that.

 

[johenmo]

After reading all this (fortunately (??) still holding a very small parcel of shares of BNB) and being "new to the game" I take from it that "sentiment" (read irrational thought?) can over-rule any logical thoughts (a.k.a. panic sets in). BNB were the highest risk in our "fledgling" portfolio.

Have to admit, when it start to go, I thought about selling but had bought for long term and was prepared for a slight drop. But in that time I looked deeper and found "fundametal flaws" for any business - like unwarranted revaluing property values up.

I haven't been in the share game for long but have been working for quite a while and can read a P+L and Bal sht.

But the lesson I have learned from BNB is better than if I'd taken some course!

It's interesting to read the views. But won't the bankers have the final say? Even if the share price is a factor in their decision?

 

[roland]

I suppose, just looking at BNB's chart since June 07, it's a wonder why any of us would have put money into this stock in the first place.

In retrospect buying a falling stock such as a highly geared BNB in the current financial market where credit costs are continually stressed or rising - could only be called highly optimistic or a gamble.

 

[MRC & Co]

After reading all this (fortunately (??) still holding a very small parcel of shares of BNB) and being "new to the game"

Probably a good lesson learnt.

My first stock (13 years ago now), went bankrupt, didn't get a cent back and it was my ENTIRE savings as a 12 year old boy! ha ha

Needless to say, I avoid spec stocks now!

Roland, when I do occassionally invest, I ensure I do not buy anything moving downwards (I will wait for accumulation and consolidation to take place, or for the stock to move upwards and make a HH, HL), just one conclusion I have come to. Once again, I KNOW some F/A analysts who completely disagree.

 

[MRC & Co]

Value: Determined by sum of future earnings discounted for inflation and risk.

But this will not take into account opportunity cost. Nor the current position of the firm, is book already higher than the SP, or only a tiny fraction?

 

[bunyip]

I suppose, just looking at BNB's chart since June 07, it's a wonder why any of us would have put money into this stock in the first place.

In retrospect buying a falling stock such as a highly geared BNB in the current financial market where credit costs are continually stressed or rising - could only be called highly optimistic or a gamble.

Too true, Roland.... I'll never understand why so many investors are so prone to buying stocks whose charts show a rapidly declining share price.
Nor do I understand why investors, having made the mistake of buying a falling stock, will stick with it for months or years while it continues to fall and lose them money.

If we want to make money from stocks, we need the price to rise after we buy them. (unless we're selling short, or using put options).
So if our investment must rise in value to make us money, surely it's just plain common sense to buy something that's rising in value right now, rather than buy a falling stock that might (or might not) rise in the future.
We can still perform our fundamental analysis if we're that way inclined, just to convince ourselves that we're buying into good solid companies. But the bottom line, in my view, is that no matter how well the fundamentals stack up, the stock must be rising before we sink our money into it.

Coal and oil have been going higher for quite some time. Not surprisingly, my scan for uptrending stocks brings up coal and energy stock such as STO, ORG, MCC, GCL, as being star performers over the last six months or so.
Wise in hindsight? Sure, but anyone with just basic knowledge of technical analysis and chart reading could have run a software scan to find these stocks early in their uptrends. Once stocks start uptrending, they invariably make frequent brief pullbacks consisting of a few days or a week or so of falling prices, before resuming their uptrend.
Such chart patterns are easy to recognise and easy to scan for, and offer excellent buying opportunities to climb aboard these outperformes.

I no longer trade stocks - these days I find currencies to be a more lucrative trading vehicle. But in the not so distant days when I traded stocks, I used a system that was both simple and effective.
First, I'd look at sector charts to find out which sectors were the best performers. Then I'd run a computer scan on the stocks comprising those sectors. Specifically, I set up my scan criteria to find stocks that had recently begun new uptrends, but were currently pulling back temporarily against the trend.
As soon as the pullback ended and the main trend resumed, I was a buyer.

This very basic trading system would have put you into the bullish coal and energy stocks early in the piece, not long after they started booming.
Surely this would have to be a big improvement on getting into some dog like BNB that's falling lower week by week, month by month, with no indication of when (if ever) it might stop falling and start rising again.

The BNB chart brings back memories of similar charts of SGW, HIH, and PAS ....all of which went broke. Many investors kept buying these stocks as they kept falling, believing they were getting a bargain. Even the intrepid Rene Rivkin, (who I'm quite sure made his money from his newsletter subscriptions and his broking business, but not from stock trading) kept recommending PAS as a buy as its stock price kept plunging.
I have no idea whether or not BNB is headed for bankruptcy. For all I know, the company could have a change of fortunes and the stock price could start climbing impressively. If that does in fact happen (and the chart doesn't exactly inspire my confidence that it will), there'll be plenty of investors patting themselves on the back, convinced they did the right thing in sticking with BNB. Little will they realise how much money they missed out on by having their capital tied up for so long in a poorly performing company, when they could have been invested instead in some of the high-performing coal and energy growth stocks.

 

[Julia]

Bunyip, great comments. Thanks.

Here is an extract from "Money Weekend":

Who’s to blame? Is it the evil short-sellers, made up of both private investors and so-called ‘hedge’ funds? Or is it the company itself for putting all its eggs in one basket?

Not surprisingly, for the second week running we find ourselves writing to you about Babcock & Brown. This time it’s not just Babcock’s funds under fire. Contagion has spread to the company itself.

On Thursday, shares in Babcock & Brown fell by a massive 27%. For investors that owned B&B shares that’s a fairly tough whack around the head. For those that were short, well, it was party time.

But do we blame the short-sellers for the fall in the share price? Not really. We don’t blame buyers of shares if the price rises.

Then, of course, there’s the argument that short selling is unnatural. It involves people borrowing shares they don’t already own.

That argument doesn’t hold much water. Compare it to margin lending on the long side. After all, what is margin lending? Answer: using money that isn’t yours to buy shares that you wouldn’t have been able to buy if you hadn’t borrowed the money. It’s the same principle. Margin lenders don’t receive criticism for manipulating the market though. Nobody gets too huffed if

The other argument we heard yesterday was that the “fundamentals” of B&B and their funds are strong.

Well…excuse me, but they clearly aren’t. And here’s what we’re getting at today, dear reader.

Maybe the assets are strong. But that’s only one half of the balance sheet, isn’t it? If we only ever looked at the left hand side of the balance sheet then every company in the world would be “fundamentally strong.” Insolvent businesses, train-wrecks like Centro…pretty much every company would look like a winner.

Yes, the word ‘fundamental’ encompasses all aspects of the company’s finances and investments. Debt, equity and assets.

Of course, no-one in your daily paper uttered a word about the right-hand side of the balance sheet until a few right-hand sides exploded last year. Isn’t that useless? As the credit crunch loomed like a teetering skyscraper, analysts were chanting ‘buy the banks’.

The lame “strong fundamentals” argument also hides the very reason B&B is in such strife. It borrowed a massive amount of money in a low interest rate environment. Now that interest rates have risen the firm is up a certain creek sans a certain paddle.

It’s time that the financial press and analysts stop looking for scapegoats. Instead, look at the REAL fundamentals.

Again, I'm not able to make this post unless I add more characters. Apparently the quoted article doesn't count.

 

[Mr_T]

Here's an interesting story about BNB from famous journalist Robert Gottliebsen

http://www.businessspectator.com.au/bs.nsf/Article/Babcocks-deal-addiction-FMRBS?OpenDocument

The second example of the deal making culture of the group goes back to 2003.

An organisation of which I am not a beneficiary was looking at buying a substantial area of inner city land. Part of the land was subject to flooding, so any potential buyer had to do a lot of work to work out a way to use it.

My organisation hired people to do the work and we knew that others were doing similar work on the field as they considered making a bid. To calculate a value, we worked out the maximum any developer could pay. In the end we found the land did not suit our requirements, so we stepped back and discovered the developers still in the hunt had come to a similar view on maximum value.

However, I was stunned to find that Babcock jumped in and bought the land well above what we thought was the top value to a developer.

Because their people had not been on the ground, we knew they hadn’t done the flood assessment work. They had to catch up after the purchase and as a result the land was dormant for about two years. We are talking about a property worth less than $50 million, so it was not a make-or-break deal.

However, the transaction told me a number of things about Babcock in its early years. First, they were deal makers moving from one deal to the next. Second, while most of their deals might have been well researched, they were capable of rushing into a deal without doing the base work.

That culture makes it very hard to handle the change that has taken place in the group.

 

[MRC & Co]

If we want to make money from stocks, we need the price to rise after we buy them. (unless we're selling short, or using put options).

Then I'd run a computer scan on the stocks comprising those sectors. Specifically, I set up my scan criteria to find stocks that had recently begun new uptrends, but were currently pulling back temporarily against the trend.
As soon as the pullback ended and the main trend resumed, I was a buyer.

This very basic trading system would have put you into the bullish coal and energy stocks early in the piece, not long after they started booming.

Or spreads.

But the big question is, what criteria did you use to 'find stocks that had recently begun new uptrends'? A % move from the low............a new higher high or higher low...........an uptrend over a given timeframe? It's not as simple as saying you just scan for stocks starting a new uptrend.

But I agree completely with the general idea. I use it myself when trading.