BBP 0.00% 9.5¢ babcock & brown power

back in

  1. 1,190 Posts.
    We've had a position in BBP on and off this year.

    I have always viewed this as a long term hold and still do. Unfortunately in the current environment there have been various points where the writing on the wall is very clear and we have had to make the hard decision to leave and return when the future looks better.

    Poor BBP.

    Despite being quite unwell, I made the journey to Sydney to attended the AGM a couple of weeks back. Sometimes you just have to look the management in the eye and get a feel for what is actually going on. It got hostile there at a couple of points and probably rightly so. On the day, I think we were hovering in the 9-10c range. Forgive me for stating the bleedin' obvious but things have just headed south since. I left the AGM feeling a lot better about the company but it still wasn't enough to jump back in.

    The root cause, which other posters and commentators have pointed out, is of course the management contracts. At < $20m market cap, this company, free from the House of Babcock (HoB), would have been taken over in a heartbeat. But of course free from HoB, it wouldn't be trading at the current prices.

    Larkin & Co. are faced with a number of issues weighing them down over at Babcock HQ but there will have to come a day of reckoning soon. They are going to have to trade off the fair value of their investment (which is now basically worthless) against the value of the management contract and choose the lesser of the two evils. Compounding the situation is of course the fact that the remaining shareholders (esp the sub holders) will scream that any offer for the company is too low because they entered at such a high price.

    With the price falling even further, I am sure there are many discussions with potential suitors for the whole company going on behind closed doors. Whether these will materialise or not is to be seen.

    Aside from the fundamentals, at a basic level the demand for power will not go away and with the rising population of Australia it is likely to increase over time.

    So, we're back in. Just a small holding by our standards, but back on the register nevertheless. It's dropped about 70 ticks since the AGM and there are only 27 more ticks to go before it hits the hardest of all support lines... zero.

    Time will tell.
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