This from the Westpac Broking site today;"BBI is a stapled...

This from the Westpac Broking site today;

"BBI is a stapled security over a trust containing transport and energy infrastructure assets, and the company which manages the trust. The stock’s cash yield is high but distributions are fully tax-deferred and come off the investor's cost base for capital gains tax purposes. The tax-deferred component will decline gradually over time. Distributions are paid out of a reliable and diversified stream of operating cashflows from mostly regulated infrastructure assets with stable market shares. There are no distributions from revaluations, regearing, refinancing or restructuring and any distributions from capital are temporary. BBI is highly geared and we expect more capital raisings. Rising bond yields would increase interest expense, although the effect is not strong. A high-yield but low-growth investment.

BBI has been one of the one of the worst victims of the bear market, falling as much as 56% from its 2007 peak. Investors sold BBI for its complex accounts, high gearing and perceived riskiness at a time when debt refinancing was more difficult and expensive (still is). Then short-sellers targeted the stock once word got out Babcock & Brown (BNB) had financed its holding in BBI with margin loans. Hedge funds relentlessly short-sold BBI to try to find the security price which would trigger a margin call.

BNB’s refinancing of its holdings in its specialist funds ended the short-selling and it’s hard to find remaining catalysts for the security price to head lower. Indeed the stock is undervalued in our view. At $1.17 the stock is trading on a 14.0% yield. A yield this high normally indicates an entity on the brink of failure, whereas BBI’s assets are performing well and financial risk is low to medium. Slide 10 in the analyst presentation of February 26, available on our website, is recommended reading for the sceptical/curious. BBI has reiterated the same distribution guidance again and again: 15.0 for FY08, 16.0c for FY09 - assuming no material adverse change to key tax and regulatory environments, and completion of the expansion of DBCT in line with schedule. So far the only material effect on the stock of the market turmoil has been to make it more difficult to raise equity, given the dilution which would result from raising equity at current depressed prices.

We’ve downgraded our BBI valuation from $1.80 to $1.55 strictly for the sake of ensuring the yield driving the valuation – 10.3%, which is equivalent to 7.2% fully franked – is consistent with other investments of comparable risk at the present time. Normally we recommend BBI only for income investors but the discount to the valuation is sufficient to attract capital growth-oriented subscribers as well. This does not mean the discount will unwind any time soon and we are not making a short-term trading recommendation or predicting a bounce. This is also not a signal to go heavily overweight BBI. The timing of a rerating will depend on better investor sentiment on equity markets, and that could be a while in coming. BBI is not going to do better than track markets for some time."