Macquarie International Infrastructure Fund (MIIF) quarter review
Its time to screw MIIF. The infrastruture play that people say good and others say that it is deeply suspect.
They just released their quarterly report and by all figures it looks like they are suffering the effects of this global slowdown.
- Net income was 25 million vs 145 million in the same period last year. This was attributed to
- A Lower gain from fair value of MIIF’s financial assets (6.5 mil vs 211 mil)
- Performance fees were lower (0 vs 3 mil)
- Management fees were lower (3.4 mil vs 4.3 mil)
- Lower total investment revenue. This is due to lower investment income collected as new asian investments generallly pay their distributions out of accounting profits annually in arrears. This results in a lagged receipt of intiial post acquisition disributions from such businesses.
- Dividend of 4.25 cents vs 4.15 cents last year declared.
- Cash position fell from 36 mil vs 55 mil. This is negligible compared to the asset size.
- New longterm debt of 85 mil. However short term debt was reduced from 178 mil to 58 mil.
- Operating cashflow decrease from 63 mil to 2.7 mil
- Capital expenditure decrease from 286 mil to 0
- 43 mil was paid out for div vs 0 mil last year same period.
- Revealed that underlying debt INSIDE ASSETS amount to 2.2 billion.
What we can take away from this set of results is this:
- We hope that by year end, the investment income from the asia assets does come in. MIIF borrowed 30 mil just so that they can pay the dividends. This has to be repaid.
- Consequently, they repaid more of their debt compared to last year, which is always a good thing.
- As a performance guage, the new assets would need to yield higher investment income then the European one. This is an important criteria. They sold those and justify that Asian assets will provide better yields and better value. We as shareholders would like to see that justfication in the bottomline.
- The report revealed more information on the assets. Particularly
- The revenue
- The operating Expenses
- EBITDA
- EBITDA Margin
- While we appluad that, much can be revealed about the interest coverage or the kind of debt financing plans these assets use. Most of these assets are unlisted and thus it is difficult to find any information on them. why am i so particular about this?
- Because the total debt held by these assets amount to 2.2 bil! Thats even more than the parent’s market cap. This is synonymous as those leverage buyouts that borrowed heavily in the hope of paying it off based on consistent, proven cashflow generate by the assets.
- Interest on these debts will reallly wacked the company if its floating rate. In a rising interest environment, interest rates will squeeze net profit margins greatly, thus making MIIF a sour investment.
- Normally these assets do cover these floating rate debts using interest swaps on fixed rate debts. We hope the underlying assets does manage their debts well.
All in all, there is still alot of holes to be filled. The yield is definately attractive at nearly 11%. But is this sustainable? I feel it is. The biggest question are those underlying debts.
MIIF is covered as a dividend play at my Dividend Stock Screen.
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Comments
Hi Drizzt,
1st question is how can total debts greater than total assets?
Not possible!! The debts on the B/S is correct. Unless I am wrong(possible, I only scan thru the latest results)MIIF is like your portfolio, debt on B/S is like your portfolio debt. All assets in MIIF are like Sarin, MIIF and C&C of your portfolio. All debts from Sarin, MIIF and C&C cannot be lump together because they are diff entity. Sarin can be healthy even if MIIF is gone.
EBITDA? Are these entities so young with no commitment to pay tax, repay debt, save and support family???
MIIF is a black box. If I will to value MIIF, financial statements on those entities must be available 1st(maybe those are available, I don’t know). If not I can only invest base on TRUST. But why trust someone hidding behind EBITDA?
I ponder about the point as to whether to include this 2 billion or not.
Proportionate operating businesses’ net debt: 2,296,723
MIIF net debt: 22,717
MIIF businesses’ equity attributable to MIIF shareholders: 1,597,790
Enterprise Value (EV): 3,917,230
Total operating businesses’ net debt as a percentage of EV: 59%
Total net debt as a percentage of EV 59%
Do we or don’t we add this 2.2 billion? You are valid to say that the failure of an underlying does not affect another underlying.
However, most of these underlying assets are unlisted. What happens when the underlying take on more debts when they realise their cashflow are unable to sustain a targeted ebitda? A default on payment might mean that MIIF be inevitably affected.
Most of the assets have one thing in common and that is they can be very sensitive to interest rates. Thus I feel the need to include this as total debt.
Granted, I am still debating whether i am wrong and right to add this into my ratios calculations.
I would say the underlying assets are a black box, just like the subsidiaries of most companies. It is whether the parent chose to reveal them.
best regards.
No Drizzt, it is different. For subsidiaries of most companies, their assets and liabilities are accounted for in the B/S(unless the company is a huge spiderweb, it become hard to read the account). Company must consolidate their subsidiaries. For MIIF, it is like a portfolio manager, their B/S is for the portfolio, their investment are accounted for in the asset side of the B/S as “fair value”, which is like the market price of these investment. In short, if you ask me, it is useless to read MIIF financial statement because it reveal nothing important.
Using proportionate debt on those businesses to MIIF assets is incorrect in the 1st place as the basic is wrong. Even if you do that ratio, it does not show anything important. So if the ratio is useless in this case, then throw it away. Also, Since it is proportionate on the amount of ownership of MIIF, the proportionate debt tell nothing of how much debts of each individual is taking. In another sense, it become useless again.
From newspaper, MIIF invest in pretty stable businesses, which is “inflation protected”. In this case, EBITDA is pretty stable because it is before interest payment, tax, depreciation and amortisation. So if MIIF want to leverage (depend on their ownership to affect management of the businesses, I think MIIF own less than 10% in some businesses), we don’t know.
The make up of MIIF financial statement is totally different from other companies or even REIT. To understand and to do some meaningful ratios, we must understand it 1st, not the other way. Like the case of Synear rent or own properties, we must understand it 1st before what the ratio can tell us.
Like I written earlier, buying MIIF is base on trust, the trust that the management/investment skill of MIIF and of course — integrity.
i see dnhh, now i know why i faced obstacle reading this. like you say reading it highlights “nothing important”.
Sorry Drizzt, I exaggrate “nothing important”. Reading MIIF financial statement is useful because it reveal what happen at the portfolio level and perhaps more.
If enough imformation is given and a good knowledge of those industries, reverse engineering can be done to get a meaningful financial status of their investments. I might try(not sure if i am up to the challenge)if the yield is high enough to compensate the risk and knowing Macquarie is extracting value away from MIIF all over various transaction and over the life span of the assets.
hi dnhh, i guess i would continue reading up more on these industries just like i always have.
What is stopping me from adding on have been the risks involved and really i get more info about investing in infrastructure and the likes from external source rather than miif report, although its been changing quite a fair bit.
I just got off phone with investor relation re the following queries:
a) why report ebitda & not netPL
he says infrastructure assets are very large ticket items & miif is interested & to intend to show to public their ability to generate + increase operating profit. showing only net PL would not be able to achieve that
note also “Investments in Asia generally pay distributions out of accounting profits” therefore this lessen worry about assets paying dividends out of their capital
b) acquisition of asian assets
he reiterates again opportunities pipeline is very strong however as the world has changed it is very very difficult to make accretive acquisitions in excess of trading yield; therefore that has been kiv for now
c) pay dividend more than net PL
miif declares div to be paid of ~44mio however net pl (adj) is only 30.8mio how is this possible? he says this is a timing issue: since 30jun, miif has received additional 40mio from assets therefore will be more than enough to cover div payment
d) performance of 2008
as per announcements, he expects strong performance for 2008; at the minimum, the net PL (adj) would be similar to 2007; considering the financial tsunami that 2008 has, this is very commendable
e) final last words
before hanging up he repeats & stress the official words that miif assets are operating very strongly; business is as per usual; debt at asset level is negligible; all in… it’s in good shape
thanks for sharing the information kysier.
We can only know in time to come whether the things that come out from the horse’s mouth is like the eventual reality.
best regards.
i am vested in this at 70-80c range… therefore it is distressing to see the current quotes. Me thinks mosttly it is due to the negative reaction or speculation to the health of parent macquarie group. Actually investor relation is also aware of such negative perceptions floating around. He counters: the board of directors of parent & miif are independant of each other… it is not like parent can come in & dictate the running of miif; as well, there is nothing to stop shareholders from voting out the current miif management team if the latter is deemed ‘incomptent’. anyway, parent credit rating has been reaffirmed.
really i am at odds to come up with reason why this thing is being bashed like hell.
u can see that morgan stanley, merrill were substantial shareholders here. this might be a combination of bad sentiments, shortist and these big boys unloading.
i have been asking myself if this price is justifiable. truthfully i expect them to pay 4 cts in the second half of the year.
based on the share price right now, the major risk is whether cost of equity and debt increasing will have a negative impact operationally. we will know at the next reporting.
a key note is that getting additional 40 mil in cashflow brings cashflow only up to 70mil. that aint enough to cover 8.4 cts of full year dividend comfortably. it has to be substantially higher.
they would really need to show net fees and borrowing costs, they can churn a good cashflow.
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