Dalrymple Bay (ASX: DBI) experienced a rare 5.9% selloff on 13 June, after its largest shareholder, Brookfield Infrastructure, sold $428 million worth of stock or 23.2% of the company in a block trade. The block was priced at $3.72 or a 7.9% discount to its last closing price.
Brookfield fully acquired the Dalrymple Bay Terminal in 2010, and listed it on the ASX in late 2020. The IPO consisted of a partial sell-down by Brookfield, and the issuance of new shares at $2.57 a piece to new retail and institutional investors.
Despite the sharp selloff, the stock's fundamentals remain unchanged. If anything, the weakness has made its dividend yield more attractive, rising from approximately 6.0% to 6.3%.
DBI operates the Dalrymple Bay Terminal (DBT), which is the lowest cost export pathway for mines located in the Bowen Basin and services some of the world's largest mining companies including Peabody Energy, Stanmore Resources and Whitehaven Coal.
Since it began operating, DBT has undergone seven phases of expansion, growing from its initial capacity of 14.5Mtpa in 1983 to its current nameplate capacity of 85Mtpa. It doesn’t own the terminal outright — rather, it holds a 99-year lease (50 years initial, plus a 49-year option) from the Queensland Government.
What makes DBI interesting is its business model – which can be explained via its profit and loss statement, where you'll notice two line items that offset each other.
TIC revenue refers to the company's core revenue stream — a fee charged per tonne of coal capacity contracted at DBT.
Then there's handling revenue, which equals handling costs, and revenue from capital works, offset by capital work costs.
Handling revenue: DBI passes all operating and maintenance costs (think labor, equipment, upkeep) straight to its customers. This means handling revenue always matches handling costs.
Revenue from capital works: DBI funds Non-Expansion Capital Expenditure (NECAP) projects — like safety upgrades or equipment replacements — with its own cash or debt. These costs are capitalised (not expensed immediately) and recovered over time through TIC rate hikes, including a return tied to bond yields. That’s why "revenue from capital works" equals "capital works costs".
Regardless of the tonnes exported, DBI receives the TIC on every tonne of the terminal's annual contracted capacity of 84.2mt. Over 80% of the coal shipped from DBT is metallurgical coal and despite current historically low coal prices (~US$180-200 a tonne for met coal) the mines that ship through DBT have long mine lives and are predominantly in the bottom half of the global cost curve such that they are generally still profitable at these prices.
This resilient business model has translated into a steady earnings and dividend profile for DBI. Citi analysts project consistent growth across key metrics:
| 2023 | 2024 | 2025e | 2026e | 2027e |
---|---|---|---|---|---|
Revenue ($m) | 642 | 767 | 832 | 849 | 890 |
EBITDA ($m) | 261 | 280 | 291 | 301 | 334 |
DPS (cents) | 20.8 | 22.0 | 24.0 | 24.9 | 25.9 |
Yield (%) | 5.5 | 5.8 | 6.3 | 6.6 | 6.8 |
The Brookfield divestment also brings additional benefits. Citi analysts noted it boosts the company's free float and "could jump 30-40 spots in the S&P Small Ords and be included in the ASX 200.
With DBI's seemingly bullet-proof business model and its track record of consistent growth, I spoke with CEO Michael Riches to gain deeper insights into the company and explore whether anything could potentially hinder its positive outlook.
DBI’s earnings are underpinned by long-term take-or-pay contracts and an agreed pricing framework with our customers that runs to 2031, providing strong cash flow visibility with full protection against coal volumes and operating cost variability.
All terminal capacity is fully contracted through to June 2028, with evergreen renewal options in place. Annual inflation indexation, full pass-through of operating costs, and a return on and of capital invested at the terminal further strengthen revenue stability.
DBI’s revenue is unaffected by coal prices or volumes shipped, as we earn revenue across fully contracted capacity through to at least 2028. In the event of customer default or contract non-renewal, our socialisation mechanism reallocates charges across remaining users to protect revenue.
We also have strong force majeure protections in place, ensuring no loss of revenue from disruptions due to weather or operational issues.
These features provide resilience against market fluctuations, including changes in global steel production.
DBI expects there to be continued strong demand for metallurgical coal over the long term and as a coal terminal that supports predominantly metallurgical coal mines we expect the demand for capacity at the terminal will remain strong
DBT has significant expansion capacity to support growing metallurgical coal exports from the Bowen Basin. The 8X Project could add up to 14.9Mtpa through a staged approach, with a total estimated capital cost of around $1.48 billion. With over 30Mtpa of demand for capacity currently in the DBT queue, customer demand for additional capacity is strong. We’re actively working with access seekers who provided over $30m of funding for the feasibility phase to determine the most efficient structure and timeline for the expansion.
DBI is focused on long-term opportunities that build on our core strengths - stable cash flows, strong customer relationships, and disciplined capital deployment. We assess growth through a strict set of filters, targeting infrastructure assets with high barriers to entry, strong customer bases, and potential for efficiency gains or capital deployment that deliver strong returns.
DBI assesses opportunities, including in relation to new energy products. Any investments will have to align to our current low risk profile and support shareholder value over the long term.
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