News from the week includes: BHP’s Chairman stated that the balance sheet comes before the dividend policy, McPherson’s provides an update on its operations which suggest that the company is on track for a solid 1H16,NEXTDC has closed its Notes II offer and announced an equity raising of $120m and Transurban has announced its acquisition of the AirportlinkM7 toll road
BHP balance sheet strength before progressive dividend
Last Thursday, BHP Billiton held its Annual General Meeting. At the AGM, Chairman Jac Nasser refused to recommit to BHP’s progressive dividend policy noting that that the company’s balance sheet comes first. Dividend policy will be reviewed as part of the miner's interim result in February.
This statement is positive for bondholders and we continue to see the BHP fixed rate subordinated bonds as representing good value.
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McPherson’s expects a stronger year
McPherson’s has provided an update which suggests that it should post a solid 1H16 result. In this update, MCP anticipates an EBITDA figure of around $17m in the first half of FY16. Market conditions outside of MCP’s control, namely a lower AUD and increased commodity prices remain the key risks.
The company will give full year guidance at the 1H16 results announcement in February 2016.
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NEXTDC raises $100m in bonds and $120m in equity
Last week, NEXTDC closed its $100m ‘Notes II’ offer and on Monday announced a fully underwritten equity raising of $120m. The Notes II offer presents good value and is expected to commence trading in December. These initiatives, together with cash reserves, undrawn secured debt facility and ongoing operating cashflow are expected to provide NEXTDC with adequate funds to complete the initial investment in new facilities and fund the capital requirements of potential new large customers.
NEXTDC continues to experience strong growth, maintains a strong balance sheet and the Notes II offer presents good relative value with a 8.25% total coupon (albeit 1.25% is not paid until redemption).
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Transurban to acquire Brisbane AirportLinkM7 toll road for $2bn
Transurban Queensland (‘TQ’, previously Sun Group) has reached an agreement to acquire the AirportlinkM7 toll road for $1.87bn, plus stamp duty of $108m and transaction costs of $23m. AirportlinkM7 is a quality urban tunnel completed in July 2012, connecting Brisbane Airport and the Australia TradeCoast with the CBD, Brisbane’s northern, southern and western suburbs. The acquisition is expected to close in the first quarter of 2016.
With traffic history, Transurban has been able to value the toll road based on actual data and the acquisition price represents 51% of the original build cost. We are comfortable with the asset and the credit story going forward since the asset will have substantially less debt post-acquisition ($950m versus $3.5bn previously).
The Transurban Queensland 2021 fixed rate and 2024 floating rate bonds are currently offered at indicative yields to maturity of 4.30% and 4.70% respectively and are available to wholesale investors only.
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