Just wondering if you are still holding OBL? Interestingly, whenever I think about putting an order in, it drops further. I thought I better ask if your investment thesis (from a post a few months back) or thoughts on this has changed since you last posted.
@zaidi675
As you’ll surely be aware of, the Supreme Court of New South Wales made a judgement in September in favour of Seqwater (i.e. against OBL’s clients) in relation to the Brisbane Floods Class Action. While the case is being further appealed, it is reasonable to assume that the 85m$-220m$ in pre-tax profit OBL were expecting from it in the event of a favourable outcome is now a lot less likely to materialise; beside the loss of income, there is also a reasonable chance that OBL will have to pay Seqwater’s legal costs, out of the partial settlement already recognised from the remaining 50% of the case.
While this development does not break the OBL investment thesis in and of itself, it certainly affects (in a negative way) the total return one can expect from the investment at a given price; note that, because OBL have to contribute a portion of the equity in their fund structures, the loss of income does not only impact the expected Free Cash Flow associated with the existing case book, but also the speed at which new capital can be deployed in the funds without the need to raise new equity.
Long story short, I substantially reduced my holding after the judgement, and my current allocation to OBL is only ~1%*NAV; should the SP keep dropping, to the point that the expected IRR (under a worst-case scenario relative to Seqwater) is back in line with the one I modelled at my original purchase price (~3.36$, from memory), I will contemplate adding back.
(20min delay)