Babcock buys wind farms in Germany

Australian
Wednesday 2/7/2008 Page: 29

Babcock and Brown Wind Partners has acquired four wind farms in Germany even as it continues a review that may see it sell other European wind assets. The Australian renewable energy company did not disclose the acquisition price, but said yesterday that the four farms with a combined capacity of 19.6 megawatts would be purchased using existing resources.

Babcock and Brown Wind was obliged under pre-existing agreements struck with two European developers over the past few years to purchase the wind farms as they became available, chief financial officer Gerard Dover said. "The thing to highlight is the pricing on those transactions was fixed at the time the contracts were signed," he said.

"Those that follow the wind industry would be aware of how much wind farm prices, and wind turbine prices particularly, have gone up over the course of that period." The announcement of the purchases which pushed Babcock and Brown Wind securities up 1.5c to close at $1.66 in a market down 1.5 per cent comes after the fund's embattled manager (and around 12 per cent owner) Babcock and Brown on Monday won a reprieve from its lenders.

They removed a market capitalisation clause attached to its debt facility and waived their right to review its ability to repay $2.8 billion in loans. Analysts remain divided on whether Babcock and Brown will meet its annual earnings guidance, with the most optimistic predicting it will just scrape over the line. Babcock and Brown Wind is considering a sale of some of its European wind assets as a means of demonstrating the value of its assets and thereby shoring up the discount at which the stock is trading to its international peers.

Merrill Lynch believes B&B will reap $550 million from the planned sale of wind power assets, which would be enough to pay down the debt and post a $752 million profit. "However, B&B faces a long road to restore investor confidence in its business model, management team and fund offerings," Merrill said. Consequently, the brokerage kept its "neutral" rating on the stock.

UBS also kept a "neutral" rating on the stock with a 12-month price target of $6.80. It thinks B&B will meet its guidance with a $753 million profit. UBS said an investment in B&B was "high risk" noting that a reduction in gearing and brand damage could reduce B&B's ability to sustain past revenue generation.

Credit Suisse kept an "outperform" rating on the stock with a 12-month price target of $12. But it predicting a 2008 profit of $697 million well below B&B's $750 million guidance. Citigroup kept a "hold" rating on B&B with a 12-month price target $9.50 and forecast even lower earnings of $668 million.