Babcock & Brown (BNB) News Update

Submitted by Jim Thesiger on 26 May, 2008 - 18:05

Babcock & Brown (BNB) has a $25.00 share price target from Australian stockmarket analysts from Citi.

Babcock & Brown (BNB) Reputation damage

BBP refinancing shortfall and "mis-communication":

Over the last three days BNB's specialist managed fund Babcock & Brown Power (BBP) has fallen 42%. Given: (1) ongoing concerns over its debt refinancing (2) an additional $275m funding which may require sale of assets, DRP or debt top-up (3) Significant mis-communication with the market which left many investors confused and concerned. Today BNB stated that it remains committed to BBP and will participate in funding as required. This led to concerns BNB may be forced to bail-out this fund.

A hit to BNB's reputation:

We believe that BNB is continuing to suffer from investor's lack of confidence in its high profile Australian funds BBI, BBW and BBP. The complex nature, disparate underlying assets (esp BBI) and high gearing (esp BBP) continues to weigh on their share prices. We believe that this is damaging BNB's reputation.

BNB needs to rebuild investor confidence to re-rate.:

BNB's is now on 5.5x (FY09E). We believe that the underlying business is performing well with its substantial development pipeline unpinning earnings, while its Balance Sheet was shored up post its debt extension & capital raising. However, investor confidence in the BNB "family" must be rebuilt for it to re-rate.

Valuation - Maintain Buy. PT $25 implies 10.6x 2009E

We believe BNB's situation today is not dissimilar to MQG post MAP's acquisition of Sydney Airport in 2002. BNB needs to respond to investor's concerns in order for its value to be realised (close, degear or restructure its funds).