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Annual Report: Macquarie Infrastructure FY 08

Macquarie Released their results and as expected it is a bad year for MIIF.

Here is what i inputed and gotten from my Dividend Stock Tracker:

  • Earnings and Revenue have taken a hit. Their earnings, which is highly based on the valuation of their underlying assets were down 196 mil compare to positive 118 mil a year ago.
  • We should be expecting more downside in the current deflationary cycle.
  • Operating Cashflow is down to 96mil but they are operating in the kind of business that they will at least have cashflow since their business is suppose to be the staples of the economy.
  • In terms of debt, on a corporate level, they are selling some assets and using excess cashflow to pay off debts on the corporate level. Their short term debt have turned long term but debt over asset at corporate level is managable.

What is the likely impact of high debt on their underlying asset?

A close examination will show that the total debt held by their underlying assets stand at nearly 2.2 billion. That is much higher than their assets or enterprise value.

We do not know much about the underlying debt structure but there could be problems:

debts that may need to be refinance soon will be difficult to secure in the current climate. this would result in higher borrowing cost. this will reduce income to MIIF. Bad.

One thing that i don’t understand is why does the long term debt need to raise by 90 mil due to consolidation of MaoLi’s debt, which was stated as non-recourse to MIIF. If its non-recourse, why consolidate at corporate level?

Should we be worried about the negative profit?

The unique thing about yielding assets such as this is you must look at the sustainability of yield for income and return through cashflow. MIIF seems to be doing enough. Judging by the reports on underlying assets, they are still producing, although we are likely to see smaller takings. From this point of view, i would be happy that i am holding this. Good.

However, the negative profit does tell that their asset value is falling. this is bad for MIIF, since a reduction in the underlying assets may reduce the ratings of these assets, thus borrowing cost becomes higher. Bad.

What kind of dividend yield should we be expecting?

That depends really. If you look at the net operating profit after tax, it stands near 96 mil.

If MIIf pays out 6 cents (2 x 3 cts) div next year, based on this cashflow they should be able to (this is 79% of operating cashflow)

The yield if you buy now at 30cts is 20%.Kinda cool. I must take this time to evaluate my cost yield. I bought 3 times at 88cts,78cts and 48cts. The respective yields will be 6.8%,7.7% and 12.5%.

However, the thing about cashflow is that the fecking management might want to allocate more to paying off corporate debts. they can easily halfed the 94 mil debt. but the problem is, if you pay this off, and then they consolidate more debt of the underlying asset then you end up in a negative cycle. its fucking 2.2 bil. you cannot consolidate everything. which i think they won’t

The operating profit WILL fall,so we gotta reevaluate the yield. i am just freaking glad i have not invested in Citi Corp.

Is it cheap now?

There are cheaper alternatives. At 4.6 times EV/EBITDA, its worth investing. But one should always look whether you can find something that yield higher, but cheaper.

You can track MIIF at my Dividend Stock Tracker.


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