Unique, Predictable And Stable Dalrymple Bay

This story features DALRYMPLE BAY INFRASTRUCTURE LIMITED.
For more info SHARE ANALYSIS: DBI
The company is included in ASX200, ASX300 and ALL-ORDS

Investors are being drawn to Dalrymple Bay Infrastructure’s predictability and stability in an uncertain world, offering dividend growth ahead.

• Dalrymple Bay Infrastructure operates the world’s largest met coal port
• Ongoing investment in port efficiency drives earnings upside
• Revenue upside implies dividend growth
• Private equity divestment now complete

By Greg Peel

Dalrymple Bay is a multi-user export terminal located within the Port of Hay Point, approximately 38km south of Mackay, capable of handling up to 84.2Mtpa of coal, mined in the vast Bowen Basin and transported via the Goonyella rail system.

Originally constructed by the Queensland government in 1983, the Dalrymple Bay Terminal has been expanded over seven different phases in the meantime to become the world’s largest met coal export terminal. 80% of coal passing through the terminal is metallurgical coal used in steelmaking.

The terminal’s user portfolio includes a diversified list of some of the world’s leading global mining companies and coal producers.

The Queensland government still owns Dalrymple Bay, but has leased the terminal for 50 years to listed entity Dalrymple Bay Infrastructure ((DBI)), previously Babcock & Brown Infrastructure.

Dalrymple Bay does not have a monopoly on Bowen Basin coal. The North Queensland Export Terminal (NQXT) lies 25km north of the town of Bowen, south of Townsville, and has a 50Mtpa capacity.

Since 2009, Dalrymple Bay Infrastructure, which for sake of simplicity we’ll refer to as DBI, has been implementing a non-expansion capital works program (NECAP) at the terminal, comprising projects which ensure the terminal remains in a safe and efficient operating condition, but which do not increase terminal capacity.

Most NECAP projects are related to safety and environmental improvements or compliance with various regulations and standards. Major NECAP projects are also undertaken from time to time.  

Positive Interim Surprise

In August, DBI reported first half 2025 earnings in line with consensus, but Citi noted a positive surprise to medium term revenue guidance, which the broker was “not used to” from the company.

Citi highlighted -$406m in capital works underway at the time, and -$511m total (from -$471m previously). The $40m increase represents NECAP 8X (eighth phase), which should raise the DBI‘s terminal infrastructure charge (TIC) uplift to 0.63c/t from $0.62c/t previously.

Additionally, Citi noted a non-TIC revenue increase through optimisation/capacity pooling. This increases other revenue to $4m-plus annualised, which is relatively material, Citi suggested, as there are no costs and/or capital attached.

Along with non-TIC revenue, which should flow into free cash flow, Citi highlighted an announced capital allocation review. The estimated combination from both should lead to higher near-term distributions and drive value in a market that is pricing in lower cash rates.

Citi retained a Buy rating.

Sell-Down

DBI’s IPO foundation shareholder was private equity firm Brookfield, which sold down -23% in June for $3.72ps and the final -26% last month for $4.05. The significant sell-down unsurprisingly weighed on DBI’s share price.

In response, Morgans last month upgraded DBI to Accumulate from Hold given share price weakness, noting Brookfield’s exit implied no fundamental change to the business. On September 22, DBI was added to the ASX200.

Morgans’ base case is for DBI to grow earnings at an 8% compound annual growth rate over FY25-28, with a step-change from major project commissioning in mid FY27.  Dividend growth is assumed to remain within guidance of 3-7%pa, with stronger growth in the early years. Morgans’ forecasts do not include the 8X expansion, M&A, or changes arising from the capital allocation option review.

An outcome of that review is expected to be published with DBI’s full-year 2025 result next February. Keeping the status quo would see DBI continue to part-fund its capex with operating cashflows, Morgans notes, leaving it with strong credit metrics and debt capacity within its target credit rating.

The alternative would be to entirely debt fund capex, allowing a greater amount of cashflow to be paid out to investors. The downside of this option would be relatively weaker credit metrics compared to the status quo, albeit still within the constraints of the target credit rating.

Predictable and Stable

Last week Macquarie initiated coverage of DBI with an Outperform rating, describing the company as a unique infrastructure business, with a predictable base income growing with inflation.

Replacement/NECAP investment of some -$0.7bn becomes the near-term growth driver in the next five years, Macquarie suggests, adding around 27% to earnings, which “comfortably” translates to 5%pa sustainable dividend growth.

Re-contracting with miners in 2031 could see DBI move from the current light-handed regime to an unregulated regime, Macquarie notes, in which it can price relative to alternative ports like NQXT.

This could bring material upside ($1.00ps on the broker’s estimate). Even if the current regime continues, there is scope to reprice access to reflect higher bond rates compared to 2022, and recovery for future remediation costs.

8X is a $0.5-1.5bn NECAP opportunity that could add $0.16-0.48ps to DBI’s valuation, Macquarie calculates. Timing of the investment decision is 2026 or 2027, with clarity around NQXT, Goonyella to Abbot Point rail expansion (GAPE) demand and miner Anglo America’s unused capacity contracts potentially deferring the decision.

Medium term, NECAP will grow as further major reinvestment is required.

M&A Risk

When Citi retained its Buy rating on DBI post the interim result in August, it came with the caveat “we are cautious about potential M&A discussions”, with regard to the announced capital allocation review.

In September, Morgans suggested DBI may appeal to investors seeking dependable and growing yield and defensive elements for their portfolio. However, said Morgans, a key risk is a value-dilutive capital raising and/or M&A.

Last week, Macquarie noted acquisition risk is emerging as DBI seeks to move from being a single asset, noting green steel is the substitute for metallurgical coal and port demand. The government’s Net Zero by 2050 policy aids this.

However, in Macquarie’s view the quantum of sunk capital in blast furnaces, Goonyella’s lower cost and better-quality coal position means the 20-year outlook remains robust.

Unique Investment

Macquarie believes DBI is a unique investment with dividend growth of 5% and an enterprise value to earnings multiple of 13x, which is below comparable port multiples.

The main upside event for Macquarie is the 8X development, and medium-term repricing to capture more of the difference between NQXT and Dalrymple Bay.

Citi noted in August that as we move past peak ESG, management is seeing borrowing markets open up. With $474m in undrawn debt facilities, headroom to investment grade credit ratings and minimal risk to revenue/cashflow, DBI is flagging the potential to fund more NECAP with debt.

This is not insignificant to potential distributions in FY25/26. Following a review to capital allocation, Citi estimated there is potential upside to near term returns.

(“Peak ESG” implies the strong focus on ESG factors impacting listed companies which Citi suggests is not now as stringent as it was. Clearly, in Trump’s America ESG no longer exists.)

Citi has set a price target of $5.20 for DBI, up from $4.20 prior to the interim result. Last month, Morgans retained its $4.73 target.

Macquarie has initiated with a target of $4.91.

The consensus forecast dividend yield is 5.6% in 2025 and 5.7% in 2026.

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