Babcock & Brown (BNB) Share Trading Recommendation

Submitted by Craig Strzelecki on 23 February, 2007 - 18:44

Babcock & Brown (BNB) have a reiterated Buy share trading recommendation with a steady share price target of $32.62 from analyst Citigroup Investment Research (CIR). They have the view that earning risks still lay firmly on the upside given that the company has a (i) a doubling of AUM in 2006; (ii) the deployment of capital raised in September; (iii) favourable conditions for new fund creations; and (iv) the expansion of the group’s debt facility. The company had a strong CY06 result. PBT grew 44 percent to $478m (CIR estimate was: $485m) while a low tax rate boosted NPAT by 62 percent to $407m (CIR estimate: $395m) on Net Revenue that rose 55% to $1.29bn (CIR estimate was: $1.33bn) so this was above consensus expectations. Encouragingly, AUM rose 103% to $44.1bn. DPS was 36 cents. The result was driven by strong activity within the Infrastructure and Corporate Finance segments, and benefited from significant advisory work from its acquisitive listed funds, the creation of new funds and solid operational earnings from property and wind farm assets. Management has guided to CY07e EPS growth of "at least 20%" – effectively reflecting current consensus expectations. While competition for assets is inevitable, the strength of the pipeline (investment and development) and significant balance sheet flexibility suggests conservatism (refer pages 5-6). CIR have made immaterial adjustments to our market-high forecasts. Note that the group is currently sitting on $262m in unrealized gains from equity investments, in addition to $257m of deferred fees. Meanwhile, analyst UBS have a Buy 2 recommendation and an increased price target of $33 per share. BNB delivered a very strong FY06 Result at $407m, exceeding UBS estimates by 7 percent & consensus by 10 percent. Quality was good, with (1) EPSg of 58% (2) ROE 31% up from 28.8% (3) AUM $44.1b, up 103% (4) Staff numbers up 59% to 1,019 (5) Rev per FTE up to $1.6m. Divisional Rev: Infrastructure up 92%, Real Est. up 10%, Op Leasing up 57% and Corp Finance up 189%. The analyst have increased their price target to $33, implying BNB maintains its PE. BNB is trading at a 8% discount to the Industrials. Keyd rivers for Babcock and Brown share price: (1) expanding capital base (2) highly leveraged to its Funds rollout (3) seed assets on its bal sheet (5) diversified rev. Risks: (1) PE is volatile (2) significant interest rate & markets risks.

Babcock & Brown Limited is listed on the Australian Stock Exchange (ASX) under stock code BNB. You can view their investor website here. Babcock & Brown is involved in investment banking, structured finance advisory, arrangement and management businesses, principal investment and other wholesale financial services. BNB was listed on the ASX on 6 October, 2004. Phillip Green is the Managing Director of Babcock and Brown. Find out the meaning of the recommendations in this primer. More Babcock & Brown (BNB) shares recommendations and news. Browse for other stockbroker recommendations. Check your charts and good luck with your share trading!