NECAP Projects And Diversification Will Boost Future Capacity

Key Takeaways

• Growth in Terminal Infrastructure Charge from NECAP projects and inflation is expected to drive stable revenue and earnings.
  
• Diversification into new energy products could create new revenue streams, contributing to future earnings growth.
  
• DBI's reliance on coal exports and high capital expenditures, alongside rising costs and interest rates, poses risks to future revenue, margins, and financial stability.

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 increase in the Terminal Infrastructure Charge (TIC), which is expected to continue growing due to inflation indexation and NECAP projects, is likely to drive stable and growing revenue.
  
• The completion of NECAP projects and future projects like Shiploader 1 replacement will uplift the TIC, contributing to revenue and earnings growth.
  
• The potential 8x project, although requiring higher TIC, will expand capacity significantly and could lead to substantial future earnings growth if it proceeds.
  
• Diversification of the terminal’s use to include new energy products could open new revenue streams contributing to future earnings growth.
  
• Strategic priorities like delivering organic revenue growth, debt optimizations, and ESG initiatives are set to enhance financial stability and may improve net margins over time.

Dalrymple Bay Infrastructure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dalrymple Bay Infrastructure's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.7% today to 13.3% in 3 years time.
• Analysts expect earnings to reach A$99.4 million (and earnings per share of A$0.2) by about February 2028, up from A$76.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as A$109.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.1x on those 2028 earnings, up from 23.3x today. This future PE is lower than the current PE for the AU Infrastructure industry at 28.3x.
• Analysts expect the number of shares outstanding to grow by 6.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.55%, as per the Simply Wall St company report.

Dalrymple Bay Infrastructure Future Earnings Per Share Growth

Risks

• A significant portion of DBI's revenues is dependent on metallurgical coal exports, which face potential long-term decline due to global shifts towards renewable energy, impacting future revenue stability and growth.
  
• Higher capital expenditures for projects like NECAP and the Shiploader 1 replacement could strain financial resources and affect the company's ability to maintain or increase net margins.
  
• The projected increase in costs associated with the 8x Project, alongside uncertainties in construction costs, could lead to budgeting risks and affect expected future earnings.
  
• Rising interest rates and finance costs linked to floating rate debt could reduce net profit margins as the company carries significant debt levels.
  
• Operational and execution risks related to their extensive NECAP projects and potential diversification efforts could lead to unanticipated costs or delays, potentially impacting the company's earnings and financial outcomes.

Valuation

• The analysts have a consensus price target of A$3.47 for Dalrymple Bay Infrastructure based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$4.3, and the most bearish reporting a price target of just A$3.05.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$746.8 million, earnings will come to A$99.4 million, and it would be trading on a PE ratio of 27.1x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of A$3.61, the analyst price target of A$3.47 is 4.0% lower. 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.