BAA reported Q3:11 revenue and adjusted EBITDA of £629.4mn and £331.7mn, respectively. Free cash use in the quarter was £42mn (£192mn year to date). Net debt at ring-fence (£10.4bn) and sub holdco (£10.9bn) rose marginally from Jun-11, largely a result of the free cash use. However, net debt to RAB ratios are at 76% (ring fence) and 80% (sub holdco), flat to levels at Jun-11 due to growth in the regulated value in the assets (inflation adjustment and capex greater than depreciation).
Outlook for FY:11 is unchanged at revenue and EBITDA of £2.3bn and £1.12bn, respectively, and management expectations are for continued growth in EBITDA in 2012 due to regulated price increases. The company will publish more formal 2012 guidance in December.
Morgan Stanley commented that these are a solid set of results from BAA but a potential decline in passenger volumes, continued free cash use, and large financing needs remain a concern, in their opinion. Looking forward, earnings will continue to benefit from higher regulated prices and debt to RAB ratios from an inflation tailwind, in my view. However, weaker passenger volumes and large refinancing needs remain the two key risks for BAA credit. Global air cargo volumes continue to point to declining passenger volumes late in 2011 and into 2012 and absolute refinancing requirements remain high for BAA in the next 2 yrs (now approx £2.7bn through 2013) – an issue that may gain greater focus if credit markets remain weak and operations continue to generate negative free cash flow.