citigroup forecasts, page-6

From Citigroup

Babcock and Brown Power
Little Margin for Error
To circumvent the capital commitment relating to Tamar, BBP has sold the asset
to the Tasmanian State government at an accounting loss of $42m (includes
reversal of a $81m provision).
BBP also disclosed their outstanding drawn debt facilities of $3.7b post $770m of
asset sales. The company estimated that their free cash balance was c.$350m.
This in effect, implies that BBP’s debt position appears to have increased by at
least c.$240m or 35cps.
The incremental information disclosed on the company’s debt position and
funding cost reduces our valuation by c.70cps. We continue apply a discount for
the potential impact of an Emissions Trading Scheme on BBP’s coal-fired assets.
Our target price falls to 10cps. With $336m of debt facilities from BNB that need
to be repaid over and above the BBPH debt, c.50cps of equity value would need
to be realised before current equity holders can claim their share. Our rating is
lowered to Sell, Speculative risk.
BBP announced that they had obtained an extension on the outstanding BBPH
financing requirement of c.$120m until 31 March 2009. The margin on this loan is
initially 250bp, rising to 450bp in the final three months to maturity. The company
also confirmed that the separate BBPF debt (~$2.7b) contains market flexes,
exercisable by the syndicate banks between financial close and syndication.
Rating Hold, Speculative (2S)
Price $4.51
Target Price $6.68
Expected Total Return (%) 58.6
Market Capitalisation ($Abn) 1.5
BNB.AX (Y/E Dec) 2007A 2008E 2009E 2010E
Rpt NPAT ($Am) 643 570 449 495
Core EPS (A¢) 174.5 151.4 117.1 129.0
EPS Growth (%) 52.0 (13.0) (23.0) 10.0
P/E (x) 2.6 3.0 3.9 3.5
DPS (A¢) 54.4 47.2 36.5 40.2
Yield (%) 12.1 10.5 8.1 8.9
Franking (%) 50.0 40.0 40.0 40.0
Source: company reports, Citi Investment Research
Near term market volatility and short term trading patterns
may cause the ETR to become temporarily misaligned
relative to the hurdle for this stock’s fundamental rating, as
defined under our current system.
Research Publication Date: 11& 18 August 2008
Rating Sell, Speculative (3S)
Price $0.25
Target Price $0.10
Expected Total Return (%) -60.0
Market Capitalisation ($Abn) 0.2
BBP.AX (Y/E Jun) 2007A 2008E 2009E 2010E
Rpt NPAT ($Am) 0 6 -42 -27
Core EPS (A¢) - 0.9 (6.0) (2.7)
EPS Growth (%) n/a n/a (768.0) 55.0
P/E (x) n/a 28.0 (4.2) (9.3)
DPS (A¢) 14.0 13.0 0.0 0.0
Yield (%) 56.0 52.0 0.0 0.0
Franking (%) 0.0 0.0 0.0 0.0
Source: company reports, Citi Investment Research
Research Publication Date: 19 August 2008