Babcock & Brown Wind Partners – Wind Farms for Sale
Australian wind power operator Babcock & Brown Wind Partners makes a tiny profit, has A$3.3 billion in debt and its share price is lagging. It now plans to reverse its expansion program and sell some assets, in order to boost the share price. Is it a time to buy the shares?

In 2005 Babcock & Brown Wind Partners – established in 2003 by merchant bank Babcock & Brown - listed on the Australian Securities Exchange. The company held a portfolio of wind power assets in several countries, and it announced:

BBWP intends to expand its diversified global portfolio of wind energy generation assets after listing. Through its relationship with Babcock & Brown and via strategic alliances with wind generation development companies, BBWP will seek to identify superior investment opportunities. BBWP will be managed by Babcock & Brown and will have the benefit of access to its considerable experience in the wind energy generation sector and its global infrastructure investment and structuring expertise.

On February 28th, 2008, the company announced the possible sale of part of its portfolio of wind power assets.

Officially, the reason was to “unlock portfolio value”. In other words, the Babcock & Brown Wind Partners share price was lagging the perceived value of the portfolio.

The shares were put on the market in 2005 at $1.40. They briefly edged above $2 in May 2007 before falling to as low as around $1.30 early this year.

According to the Business Spectator:

Babcock & Brown Wind Partners and its parent group Babcock & Brown are to offer their European wind energy assets for sale after becoming frustrated by the low market valuation of BBW shares.

…BBW’s European wind portfolio is worth more than $1.6 billion, based on its own current market valuation of $2.1 million per megawatt. However, BBW argues that similar assets in Europe are trading at more than double that valuation.

If it can achieve a sale of significant scale, it hopes the valuation multiples of such a transaction will flow through to the rest of its portfolio.

BBW said its relatively low trading multiples – 13.8 times forecast 2008 EBITDA compared to more than 18 times for listed European wind specialists – has been hampering its ability to source new assets in third party tenders.

BBW CEO Miles George said if the company was to trade on similar multiples to its European peers, that would translate into a market price of more than $3 for its listed securities, compared to the recent market price of around $1.45.

George said he could not explain the valuation gap, other than to suggest that BBW was a relatively new player in the market and its listing on the ASX might make it remote from the major wind energy investors.

But the Crikey.com.au website was cynical (that's their job):

The announcement by Babcock & Brown (BNB) and Babcock and Brown Wind that they’re trying to sell some wind farms seems to have been universally taken at face value.

What it boils down to is BNB and BBW saying it’s a terrible thing that the market doesn’t believe the valuations they have on their European wind farms, so they’re going to try to flog some of them just to prove they’re right – oh, and it would allow both companies to pay down some debt. And maybe buy something that would add value. Yeah, maybe.

Time will tell. But if the company is right, the shares are mightily under-valued right now. However, should it transpire that the company has debt problems the shares could fall a lot further.

March 1st, 2008

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