JNM

Why Isn't Maguire Properties Buying Back Its Preferred Shares?

The Company is amidst a monumental liquidity crisis (hence dividend suspension) and they are simply trying to keep their head over water. While I'm sure they would love to repurchase their preferred shares at ~$2.25 p/s, the annual savings of nearly $20M needs to be reserved for the property portfolio. They have refinancings on the horizon and the LTVs have elevated to unsatisfactory levels for the lenders. In some cases, the cash will need to be deployed towards these troubled properties to lower the leverage.

Aside from that, the Company might be precluded from buying back either common or preferred shares by its bank facility.

Aircastle Remains On Course

Both the revolver and warehouse mature in 12/08. The revolver is flat, but the warehouse has $255M drawn. It's backed by 11 aircraft. AYR is in active talks to sell the 11th plane and wrap the balance of 10 in a term facility spanning 5Ys totaling ~$215M. The other financing hurdle is raising capital for the pre-delivery payments (PDP) on the A330 order of 12 aircraft. They owe $17M this year and another $153M in '09. Management expects to have both items cleared up by YE08.

ABB Perfectly Positioned to Benefit from Global Infrastructure Boom

To rely upon PE/G as your bread-and-butter valuation metric is a bit reckless. While trading at a discount to growth seems to imply a cheap valuation, it trades in-line with several of its peers (EMR, CBE), it's more expensive than SI. More importantly, this ratio is driven by a consensus estimate for long-term growth. In ABB's case, the denominator is 20.7%! I wouldn't model anything above 18% and that is probably generous. Look at the financial targets provided by management in 9/07. The consensus is overly optimistic and certainly doesn't discount the pending slowdown in Europe and inflationary issues in the ever-talked about BRIC-nations. While there is a need for infrastructure buildout, the "need" doesn't automatically translate into sales. Everyone argues that the U.S. has an antiquated grid that is pushing 25Y old....so? That doesn't mean AEP and SO are going to do anything about it. That upgrade when something breaks beyond repair. Be careful with ABB....its expensive on nearly every other metric known to a CFA...including DCF, P/B, P/S, and everyone's favorite, P/E. For what it's worth, I'm long ABB, but certainly not adding at this point. Most of the original investment has already been extracted at north of $30.

The Long Case for ABB Ltd.

While I donʼt dispute your assessment of ABBʼs phenomenal market position with attractive exposure to the rapidly growing international markets, it seems that your valuation mark is a bit optimistic. To begin with, the consensus long-term growth rate of 20% is a bit toppy and sits at the top-end of managementʼs range of between 15% and 20%. A good chunk of ABBʼs easy growth has already been realized with comparisons growing tougher by the quarter. I have modeled 17.5% EPS CAGR on 11.0% REV CAGR through FY12E. Crediting ABB for its BRIC penetration, my DCF assumes TVG of 4%.. The balance sheet is roughly 80/20, equity dominated and bears a WACC of 11.6% based on current beta, UST rates, 12% dividend growth and 27% tax rate. I find it difficult to discount any companyʼs cash flows at just 8%. Under my assumptions, the DCF yields a value of just south of $30. If you look at PE/G, but substitute EV/EBITDA in the numerator, you will find ABB trades in-range with several of its peers (EMR, CBE, & SI). In pricing shares at 18x EPS, there does exist some modest upside, but incremental returns in ABB are more of an uphill battle from here on out. The stock is a story told now and management is CEO-less with a Board that is inclined to find a leader who will consummate a mongo M&A deal. Swallowing up Rockwell or comparable-sized firm will serve as a big distraction and will surely be dilutive for 12M if not longer based on deal terms usually in this space. Letʼs also not forget the BoE and ECBʼs hawkish tone in response to climbing inflation, which could mount headwinds for infrastructure players in quick time. To add to my current ABB position, I would require shares to revisit the mid-$20s, all else being equal.

Iʼm long ABB in several accounts.