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Macquarie Infrastructure Corporation Message Board

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  • marklibera marklibera May 6, 2008 10:44 AM Flag

    MIC: $28.79 = same price as in Dec 2004

    I too, am in higher, but not as high as you. I would be patient and maybe add more after their next report, due May 8.

    This company is incredibly misunderstood. People like Cramer and CNBC think it is the same entity as the bank with the same name. Of course all of the financials have gotten hit by the credit crunch and Australia has had its shares of financial disasters. Because MacQuarie depends on debt to finance its asset purchases, it got sold down along with every other lender. The market thinks that they won't be able to get financing to continue buying assets.

    Another reason for the apprehension is that this is not necessarily an earnings play. You have to focus instead on their cash flow and the cash available for distribution. The headlines can be misleading as they focus on reported GAAP earnings, but it is cash available for distribution that is the key factor. They have been increasing their distributions so that is a good sign.

    Several posters on this and other yahoo message boards keep asking how a company can pay more in dividends than it makes in earnings per share. I have tried to answer that question. These companies can take depreciation charges on some of the assets and also hedge their floating rate bank debt. The assets that they own may not be depreciating as much as the charge they are allowed to take. (For a good explanation, read the recent Forbes article about Genesis Leasing, another of my holdings that got hit recently when the market thought the credit crisis would hurt them.) Same goes for other industries like the dry bulk carriers. Many of these companies pay relatively high dividends, that the earnings don't seem to cover. But the cashflow is there. People freak out when they see a non-cash charge for derivatives. I've explained on other posts that non-cash mark to market on interest rate swaps does not effect the cash flow (as long as they don't have to post additional cash collateral). Most companies lock in their floating rate debt by converting to a fixed rate using swaps. If swap rates happen to go lower, the swap is marked down, but if swap rates go up, they would have a non-cash gain. Meanwhile, the debt payments are fixed regardless, which brings stability to their cashflow.

    The market may also fear either: 1) they will overpay for acquisitions, 2) they will be too conservative in their acquisitions and not grow enough, or 3) have to raise equity to fund acquisitions and not be able to at attractive prices.

    The recent Forbes issue also has an article about Macquarie. It gives some of the details on the huge teams of analysts it puts on each deal and the number of deals they turn down.

    In sum, the sellers of the assets that Macquarie is buying are mostly desperate states and municipals who need to raise huge sums of money to pay their underfunded pension liabilities and can't raise taxes to come up with the money. They have to sell. Macquarie has developed the expertise to bid and run these assets. That's not to say that a particular asset won't underperform from time to time, but I like the economies of scale and their discipline so far.

    I hope you didn't establish your full position at the $44 level. It's a lesson that I keep having to relearn. Don't commit your full investment at any one time and keep some powder dry in case the market sells off and brings everything (even the good stories) down. But you have to keep doing your homework and make sure that there's nothing wrong with the company before committing additional capital (no one should try to buy a falling knife.) Hope this helps. Good luck.

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    • The best investment MIC can make now is to buy back its shares. The yield on the stock covers the borrowing costs. I suspect they will announce a buyback this quarter.

      I agree with you. The market does not understand the accounting. Distributable cash flow is growing, and that is all that matters.

      The stock is down becuase the growth premium is gone due to market conditions. I am not convinced this is entirely fair but admittedly the market for buyouts is tough these days.

      MIC is priced conservatively and the downside is limited. Shorts, beware of a large buyback.

      • 2 Replies to pfrien
      • I disagree with your buyback prediction. They had $57mm or so at year-end and despite the dividend savings from buying back stock, they will need that money when they find more deals to invest in. I bet their returns are north of 15% when they find the right businesses to invest in. There aren't that many shorts out there, so the best way to get the stock moving is to keep finding deals to add to distributable cash.

        I made the same argument with GLS when they were yielding over 13%. These types of businesses are somewhat similar to REITs in that their large dividend payments don't leave them much money to reinvest, which is why they seldomly buy back stock (doesn't help bookvalue either if you buy back at a market price over book).

        Let's hope the quarter went well. They had a lot of moving parts over last year. The market should begin to appreciate the stability of their assets and the 9% yield, especially if it keeps growing.

      • Also interesting that Zack's has elevated MIC to a #1 this week.

    • Thanks for the very informative post on MIC and the issues surrounding this company. I have been in and out of the stock a few times and have been lucky with my timing. I have been accumulating again recently.Good luck to all the longs out there.

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