DBI delivered a mixed FY25 result yesterday, with revenue and cash flow both strong, though there was a sharp decline in reported earnings – an accounting rather operational issue.
Earnings per share of 5.9c per security, down from 16.5c a year earlier and well below market expectations of around 15c. Revenue for the year rose to $849.8m, well ahead of both FY24 and consensus forecasts, while EBITDA increased 5.2% to $294.3m (inline with consensus) and Funds From Operations (FFO) climbed 10.6%, highlighting solid underlying performance.
The earnings miss was almost entirely the result of one-off financing costs linked to DBI’s December refinancing. The early repayment of its 2020 US Private Placement notes triggered approximately $103m in make-whole payments and swap termination costs, driving a near $90m year-on-year increase in net finance costs. Excluding these items, underlying interest costs were broadly stable to slightly lower, reflecting the benefits of the new debt facilities and improved funding flexibility.
From an income perspective, the result was strong, and the reason why the shares rallied over 6% on the day, to new all-time highs. DBI lifted distribution guidance for FY26 to 26.375c per security, up from 24.5c, and reiterated its target for 3–7% annual distribution growth. The board declared a quarterly distribution of 6.75c, taking FY25 distributions to 24.625c, an uplift of nearly 12% on the prior year. DBI is set to yield 4.9% (partially franked) over the next 12 months, or over 6% if bought ahead of this quarter’s distribution (trading ex on the 27th February).
DBI has a stapled structure (ordinary share + loan note), meaning that distributions are typically paid as a combination of dividend (which may be franked), and a repayment of loan note principal (not franked, but tax-deferred). For FY25, the Q4 distribution of 6.75c is split into 1.20c as an unfranked dividend and 5.55c as a loan note principal repayment. So, while DBI is often described as “mostly franked”, in reality, franking levels vary year to year, and a meaningful portion of the cash yield comes via tax-deferred loan note repayments, not franking credits.
The owner of Queensland’s largest coal export terminal has enjoyed a strong run in its share price, compressing the yield somewhat; however, we remain positive and happy holders given earnings (and thus the dividend) are highly predictable, underpinned by take-or-pay contract structures, which ensure contracted coal volumes are paid for regardless of throughput.
- DBI is a highly defensive, infrastructure-style asset with long-dated, contracted cash flows.
Having bought DBI at $3.37 in October 2024 and enjoyed strong quarterly distributions along the way, the returns from this investment now exceed 70%. The change in interest rate outlook is negative, but at current levels and with guided distribution growth of 3-7% annually, we continue to see DBI as a worthy inclusion in the Income Portfolio, although there are some broker downgrades around this morning, purely based on valuation.
MM remains long & bullish DBI ~$5.40
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