While important as BHP Billiton will be, the result the market is fearing is the interim report from struggling financial engineer, Babcock and Brown.
Those renewed fears last week saw it plunge 55 cents or 11% to $4.45.
It fell for on all five days last week and in total shed 34.5% of its value as investors feared the worst.
It is now down 87% so far this year and is well below is issue price of $5.
The Sydney-based company said last week that net profit at Babcock & Brown International, in which it has an 87 percent stake, fell between 25% and 40% in the six months ended June 30, from $250 million in 2007. This means its half-year profit could drop to as little as $150 million.
Babcock & Brown International holds all of Babcock’s assets.
CEO, Phil Green said the same day that volatile markets have made it "difficult” to predict earnings as share and real estate prices tumbled, eroding the value of investments.
Babcock, listed in Australia, owns most of Babcock & Brown International. US shareholders own the remaining 13%.
The median forecast is for a profit of $167.5 million for the six months to June 30, down from $250.1 million in the first half of 2007. The estimates range from $157 million to $180 million.
The group, which had previously forecast a $750 million profit, conceded its full-year profit was likely to drop below the $643 million it earned last year.
There’s been talking of disputes between auditors of B&B and its investment satellites.
The company is under pressure to unwind its European joint property venture with GPT. In a market where buyers are scarce, the joint venture is trying to offload a $7.4 billion property portfolio.
Investment bank, Citigroup said last week:
"While the main surprise in the downgrade was its timing (a week before the 1H08 result), we question whether it will prove the last, with other concerns over the group balance sheet and P&L remaining.
“We cut our CY08e NPAT by 14% to $570m, with the out-years largely unchanged and our TP falls to $6.68, reflecting 0.9x CY08e Book Value.
"Taking into account bonuses and tax, we estimate today’s downgrade implies incremental gross impairment charges of ~$130m- $210m. While not explicitly disclosed, we expect this largely relates to asset write-downs at the GPT JV, with other factors cited appearing less material.
“The value of BNB’s US residential apartment portfolios remain unchanged despite the correction in US apartment REIT prices, and we expect little change in the group’s carrying values for its listed managed funds which currently trade -35% below book value.
“As such, the market will remain suspicious and we see scope for further write-downs.”
And, Merrill Lynch said that "after re-iterating FY08 guidance as recently as its 30 May 2008 AGM, the profit downgrade highlights another instance of BNB failing to proactively respond to market conditions, in our view. Indeed, the timing of this announcement – one week ahead of its 1H08 result – signals the asset write-down led downgrade was most likely auditor imposed.
"This will do little to help rebuild management’s already fragile credibility, suggesting its current valuation discount is likely to remain.
"While we expected asset write-downs to feature in FY08, we have previously viewed European wind asset sales as an offset, providing a key underpin to FY08 NPAT and supporting both debt repayments and liquidity.
"While interest levels are undoubtedly high for these wind assets, funding constraints may limit medium term counterparty demand, raising risks to both FY08 and FY09 profit outlooks.
"While BNB is trading at only 4x revised earnings, risks remain skewed to the downside in this environment and with little investor support we believe BNB is unlikely to outperform.
