Babcock & Brown Update

Babcock & Brown has a Buy 2 broker call and a $36 share price target from Australian stockmarket analyst UBS. Deal Pipeline Coninues - EPG Upgraded 8%: A very strong start to 2007 - BNB upgrades earnings guidance: At BNB's AGM it stated: (1) Expects 2007 EPSg "approaching 30%" (from "at least 20%") (2) Strong performances YTD in Infrastructure, Op Leasing & Real Estate (3) Strong growth in AUM is driving recurring base fees (4) Just closed the BNB Wholesale Euro Infrast Fund at €1.3b (5) Working on a number of other offshore funds. Earnings upgraded by 8%. Now expect 32% EPSg (07) & 21% (08): Following BNB's very strong start to 2007 & a good deal pipeline, we have upgraded our EPS estimates by 6% (07) and 8% (08). The analysts note that given current high levels of global liquidity, strong asset prices and deal-flow we see ongoing earnings upside risk if this environment continues. A record of conservative guidance and beating expectations:
Babcock & Brown have a track record of conservative earnings guidance. It has exceeded expectations with every Result and AGM since IPO in 2004 (albeit in a very healthy environment). As a result expectations of an upgrade with the AGM have led Babcock & Brown to generate 30% shareholder returns YTD. Thus they expect some near term consolidation in BNB's price, but remain very comfortable with the 12 month outlook. The analysts maintain Buy 2 call, with a price target of $36 (prior $33) (SOTP based). Drivers for Babcock & Brown: (1) expanding capital base (2) highly leveraged to its Funds rollout (3) seed assets on its balance sheet (4) diversified revenue. Risks: (1) PE is volatile (2) significant interest rate & markets risks.

Meanwhile, Babcock & Brown have a reiterated Buy rating from Australian sharemarket analysts Citi Investment Research: BNB has upgraded FY07e guidance to market consensus levels, forecasting NPAT of $550m and EPS growth "approaching 30%". Citi Investment Research (CIR) has upgraded their EPS forecasts by 3-4% p.a. and their target price by 15% to $37.58 in rolling their NAV forward a year. The upgrade has been driven by strength in the Infrastructure, Operating Leasing and Real Estate Divisions but will be 2H-biased with management flagging 1H NPAT growth of around 35%, depending on the timing of several transactions. Should 1H07 show 35% NPAT growth, this would imply a 40:60 1H:2H split and suggests 1H07 NPAT will be lower than 2H06 NPAT. The next leg of growth has begun with BNB to launch several unlisted funds over the course of 2007. The first of these was announced today with an initial close of €1.3bn for a European Infrastructure Fund (target €1.5bn, maximum €2bn). Initiatives in progress include: further offshore Infrastructure funds; listed/unlisted Real Estate funds; a new US$1bn aircraft leasing syndicate; an aged care/retirement fund; new specialized finance funds; further investments for BCM and BNB's two private equity funds; and Alinta. Note that the development pipeline remains strong across Real Estate, Infrastructure and PPPs. Babcock & Brown has sold/is selling: (i) equity holdings in AAN, GHG & MFS; (ii) >$1.7bn of wind farms to BBW; (iii) 51% of a German residential property portfolio (with an option to sell the rest); and (iv) 25% of its European retail property portfolio (and is negotiating to sell the rest)

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!