comparisons between cnp and bbp

I thought it may be worthwhile to start a discussion that examines potential comparisons between yesterdays announcements from Babcock and Brown Power (BBP) and the interim results expected from CNP on Friday 29 August.

While both companies have very different businesses but a comparison may be legitimate given they own and manage a large portfolio of tangible assets in the form of power stations (BBP) and retail shopping centres (CNP) and have both been adversely affected in a similar way by having too much debt on their balance sheets during the credit crunch.

A summary of yesterdays announcements from BBP:

1. Sale of Ecogen Power business to co-investor Industry Funds Management at 147% above acquisition cost and delivering a profit of $28 million.

2. Sale of Tamar Valley Power Station to Tasmanian Government and a realised loss on the sale of $42 million.

3. Reiterated previous guidance for FY08 EBITDA in the range of $330-340 million before impairments. Makes no comment regarding previous forcast for FY09 EBITDA of $439-528 million.

4. Total impairment of $452 million as a result reductions in goodwill associated with the Alinta transaction and writedowns from Tamar construction costs.

5. Extension of $120 million debt facility to March 2009 and will be addressed from cash reserved and further asset sales.

6. UBS appointed as advisors to the board to assist with the "strategic review".

7. Dividend policy is "under review" given that debt facilities have priority over ongoing dividend payments.

The market reacted negatively to these revelations with the stock closing down around 41%. This reaction is most likley a result of the $452 million impairment.

With uncertainty surrounding CNP's August 29 results I wonder if we can take draw any parallels from BBP's announcements today and the market reaction. There will likely be further writedowns from CNP given inevitable declines in asset values, at least from assets in the US. Furthermore advisors fees and other fees surrounding the recapitalisation process will impact upon operating income for the period.

Perhaps CNP has progressed further along the path towards implementing it's strategic review and recapitalisation, although you could argue that BBP has delivered more asset sales necessary for survival than has CNP?

Perhaps the difficulties facing CNP have been more thoroughly factored in given its share price is currently at around 3.2% of 12 month highs while BBP's was at around 12.5% of 12 month highs prior to todays announcments and is now trading at around 7% of these highs. Perhaps the market will be more forgiving to CNP?

Obviously its difficult to draw conclusions without knowing the details of CNP's results but I would be interested in hearing analysis and opinions from others on the forum in the light of yesterdays announcments from BBP.

dc1