Babcock & Brown Power (BBP) Update

Babcock & Brown Power (BBP) have raised its FY08 guidance by 9% to 26.1cps from 24cps in conjunction with today's Alinta Scheme Booklet (SB) release. While Australian stockmarket analysts Citi Investment Research maintain a view that Babcock & Brown Power has paid a full price for the AAN assets, they still believe the medium to long-term prospects for the company remain very positive and re-iterate a Buy/Medium Risk recommendation. While there will be criticism of the 'financially engineered' nature of the AAN deal's DPU accretion, it is worth noting that BBP's FY08 DPU assumptions in the PDS included a DRP contribution. The increased DRP assumed post AAN simply relates to the increased securities on issue. The DRP is in place to offset the cash outflow associated with maintenance reserving. Babcock & Brown Power (BBP) has indicated that it expects synergies of some $14m from the deal , this is above CIR estimate of $10m. Management expects about 40% of this figure to be achieved in FY08, which will be largely offset by one-off restructuring costs of $4m. The analysts expect management to set a price for its 67% of AlintaAGL shortly after the scheme is declared effective in mid-August. AGL then has 3 months in which to decide whether or not to buy that 67% or sell its 33% stake to Babcock & Brown Power (BBP) at an equivalent implied price. Despite the view that BBP has paid a full price for the AAN assets, the analysts remain firmly of the view that the outlook for the business as a whole is positive. Furthermore, there could be upside to today's AAN numbers through Bairnsdale and Bell Bay, for instance. Their forecasts and valuation remain unchanged pending their digestion of the 648-page Scheme Booklet.

Babcock & Brown Power Limited is listed on the Australian Stock Exchange (ASX) under stock code BBP. You can view their investor website here. BBP was listed on the ASX on 11 December, 2006. The company is involved with operating and investing in a portfolio of power stations consisting of base load, intermediate and peaking power stations. The Group intends to further develop a diversified portfolio of power generation assets, both in Australia and internationally, by expanding the generation capacity of assets within the initial portfolio and acquiring and constructing new power assets. Paul Simshauser is the CEO of Babcock & Brown Power while Peter Hofbauer is the Chairman. Babcock & Brown Power (BBP) is a specialist infrastructure entity which provides investors access to a ‘pure play’ electricity generation portfolio. BBP's investment strategy seeks to provide an attractive cash yield and long term capital growth. BBP has invested in a portfolio of seven power stations consisting of base load, intermediate and peaking power stations (with a further baseload power station under construction and due to be operational in late 2008). Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade BBP. Check your charts and good luck with your share trading!