NECAP And 8X Projects Will Boost Future Revenue Potential

Key Takeaways

• TIC inflation-linked increases and NECAP investments drive long-term predictable revenue growth, enhancing DBI's earnings and cash flow.
  
• Capacity optimization and hedging strategies improve revenue and financial stability, while 8X Project boosts capacity and earnings potential.
  
• DBI faces potential revenue limits from fixed contracts, financial risks from debt and projects, and uncertainty from regulatory and market demand changes.

Catalysts

Owns the lease of and right to operate the Dalrymple Bay terminal, a coal export metallurgical coal facility in Bowen Basin in Queensland, Australia.

• The Terminal Infrastructure Charge (TIC) is expected to increase annually by inflation until 2031 under the light-handed regulatory framework, providing long-term revenue growth through predictable pricing and an opportunity to renegotiate post-2031. This will drive stable and predictable growth in revenue.
  
• With $394 million of committed capital projects underway via the NECAP program, DBI anticipates future revenue growth through these investments, as they are expected to deliver a higher Terminal Infrastructure Charge as projects are completed and operational. This will enhance DBI’s earnings and cash flow generation.
  
• The optimization initiative proposes utilizing unutilized terminal capacity through a capacity pooling mechanism, which is expected to generate additional revenue without increasing capital expenditure. This initiative reflects improved revenue growth and enhanced net margins.
  
• The 8X Project, providing up to 14.9 million tonnes per annum of additional capacity, offers future revenue opportunities from increased throughput. DBI can stagger this investment to m⃫atch demand, helping maintain capital efficiency and boosting earnings potential.
  
• DBI is shifting to a hedging strategy aligning to the new regulatory framework, which aims to manage future interest risk and stabilize financial costs, thereby protecting net earnings against interest rate fluctuations and supporting improved financial stability.

Dalrymple Bay Infrastructure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dalrymple Bay Infrastructure's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.7% today to 14.1% in 3 years time.
• Analysts expect earnings to reach A$115.7 million (and earnings per share of A$0.23) by about March 2028, up from A$81.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$139.7 million in earnings, and the most bearish expecting A$89.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.5x on those 2028 earnings, down from 22.7x today. This future PE is lower than the current PE for the AU Infrastructure industry at 23.0x.
• Analysts expect the number of shares outstanding to decline by 5.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.97%, as per the Simply Wall St company report.

Dalrymple Bay Infrastructure Future Earnings Per Share Growth

Risks

• The company's reliance on the Terminal Infrastructure Charge (TIC) and fixed-capacity contracts may limit its revenue growth potential, as it is largely dependent on fixed contracted rates and inflation adjustments until 2031, potentially impacting revenue growth beyond the current pricing framework.
  
• Any delays, cost overruns, or inefficiencies in executing the $394 million NECAP program and 8X Project could impact expected returns and increase financial liabilities, affecting net margins and earnings projections.
  
• With significant debt facilities totaling $2.33 billion and an increase to around 8% in weighted average all-in interest rates expected by mid-2026, DBI faces increased financial costs, potentially affecting net profit margins and cash reserves.
  
• The variability in cash flow due to non-investment-grade customers could present a risk if bank guarantees are not managed well, potentially impacting operational cash flow and liquidity.
  
• Regulatory changes or shifts in coal demand, particularly due to environmental pressures on fossil fuel industries, may impact long-term demand projections and customer contracts, influencing future revenue stability.

Valuation

• The analysts have a consensus price target of A$4.094 for Dalrymple Bay Infrastructure based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$821.8 million, earnings will come to A$115.7 million, and it would be trading on a PE ratio of 19.5x, assuming you use a discount rate of 10.0%.
• Given the current share price of A$3.75, the analyst price target of A$4.09 is 8.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.