Infrastructure building in Perth, page-2

While in Google mode, I found a 17 July 2015 dated update on the project for which the consortium including BYL are short listed with two other consortia – see https://www.mainroads.wa.gov.au/Bui...Projects/Pages/Perth-Freight-Link.aspx#timing. If the Clough, Brierty, WSP/Parsons Brinckerhoff and Hyder consortium win this work, BYL's SP will shoot up. The beauty about taking a punt on this is that there is, in my view, only an upside, because the SP will not retreat if BYL et alii do not win the tender.

A few salient points to be found at the above link are:

Project Funding

The Commonwealth Government has committed $925 million with the State Government committing $650 million towards the Perth Freight Link project. The State Government's contribution comprises $591 million in new funding, plus $59 million which is already committed for upgrades on High Street, Fremantle. Part of the State Government's contribution will be recouped from the Heavy Vehicle Charge.

Project Timing

Two major contracts (for Section 1 and Section 2) are scheduled to be awarded later in 2015 with infrastructure works expected to commence in early 2016 and be completed in 2019.

Commencement of construction of the Perth Freight Link is subject to environmental approval.

The first section of Roe Highway Stage 8 will provide improved access into the Murdoch Activity Centre, including Fiona Stanley Hospital in the first half of 2017.

A third section will see widening of a 1km pinch-point section of Roe Highway between Tonkin Highway and Orrong Road. Tenders for Section 3 will be called in mid-2015 under a separate construct-only contract, with award in late 2015. Construction of Section 3 is expected to be completed by end of 2016.

I have often suggested that a P/E Ratio of 7 may be a valid way of ascribing a valuation for BYL. The report at https://secure.argonaut.com/FileLink.asp?DT=R&DID=1566&DP=6111 would seem to support that multiple. The report is dated September 2013, so one should adjust its views to suit the current time. The report states:

“Historically, a strategy to buy the sector when forward P/E’s were ~8x and sell when ~12x would have worked well. We believe a similar sector strategy is appropriate going forward, but would suggest the likely trading range in P/E’s will be lower. Accordingly, we would recommend the simple approach of selling the sector at P/E’s ~10x and buying at P/E’s ~7x. At this stage in our view, risks are skewed to the downside.”

A valuation is not the same as an investor's buying price, because most investors look to buying below valuation, so valuing BYL at 7 x 8c = 56c may suggest a buying price of 56c x 80% =44.8, which is higher than the current SP.

I think that it is a mistake to invest in both sectors and themes – one should invest in self-picked stocks, and in unpopular sectors, look for babies tossed out with the bathwater. In my view BYL is one of those babies, and I have invested heavily in it, which is why I focus on it. I cherish the fond notion that on capital appreciation alone, by 2016 I'll double my money.

I have when writing about BYL in the past wanted to refer to the Argonaut report, but because I had mistakingly recalled it as a Euroz report, I could never find it, until I stumbled on it again tonight.