IAM Capital Markets View
Investors seeking BBB exposure and wanting one of the low risk (“lower-beta”) credits in the market should look no further than Port of Brisbane.
Many of the cheaper BBBs are either in airlines and/or coal-linked infrastructure names. Whilst you may be able to achieve an extra 50-100bps yield investing in this space, these names tend to be classified as “higher-beta”. This means the yield/price will typically move around in a more exaggerated fashion in risk-on/risk-off scenarios. Port of Brisbane would be classified as “lower-beta” and thus the yield/price should be more stable over time.
In our view, the QPHFIN 2.85 01/29/31s screen the best amongst the Port of Brisbane curve. The low price is a function of the duration risk they carry. However, for those investors wanting to allocate duration to a safer credit this ticks the box completely.
Why?
– Port of Brisbane has an underlying revenue stream comprised of both trade (cyclical) and property-related (non-cyclical)
– Port of Brisbane has maintained its BBB credit profile through various economic cycles
– The company has maintained an EBITDA margin of >83% which illustrates very high cash conversion
– Interest cover of 2.7x and FFO/debt of 9.2% following S&P’s methodology sit above the S&P BBB test thresholds
– The company has a conservative cash management approach which served them well during the COVID-19 pandemic
– No near-term refinancing requirements and well-laden debt maturity profile
Port of Brisbane also has made excellent progress towards their 2030 sustainability targets. The focus area and relevant Sustainable Development Goal (SDG) can be seen below.
Pleasingly, the company achieved a GRESB 5 star rating in FY21 which is sector leading.
As the reporting season comes to an end, discussion of potential corporate supply is always front of mind. Port of Brisbane also has no near-term refinancing requirements which also bodes well for technical support for their bonds across the curve. The company managed to gain longer tenor syndicated bank debt at very competitive pricing supported by Asian demand.
