Australia's second biggest investment bank Babcock and Brown (BNB) has posted a 62 per cent increase in net profit for the 12 months to December 2006. The bank reported a net profit of $406.8 million, up $155.2 million on the result from 2005.

Net revenue grew to $1.3 billion in 2006, up 55 per cent on 2005's full year figure of $833.3 million, while assets under management grew by over 100 per cent from $21.7 billion in December 2005, to about $44 billion in December 2006.

Yet despite the positive results senior management are cautious about prospects for 2007.

Although earnings per share leaped 58 per cent to 122.6 cents for 2006, well ahead of expectations, BNB's chief executive Phil Green forecast EPS growth to be cut by almost a third this year.

He said achieving at least a 20 per cent EPS growth target was dependent on market conditions during the period and on BNB's ability to continue to attract investment in its funds platform.

"BNB management have demonstrated a bit more caution than we've seen in the past," said Aspect Huntley financials analyst David Walker.

"They've achieved a high base in a very short period of time, especially in the corporate finance division. The problem is much of the business is transaction driven, which means earnings can be lumpy.

"That's why the likes of BNB and Macquarie Bank have launched investment funds. It gives them a more reliable income stream."

Walker added that increased competition in the global infrastructure markets would lead to rising acquisition prices and make it harder for BNB to achieve the same kind of returns it has done in the past.

BNB's Green said the strong results for 2006 were driven by increases in net revenue from the firm's corporate finance, infrastructure, operating leasing and real estate divisions. It also floated investment funds on both the London and Singapore stock exchanges.

Green said the outlook for most business divisions was strong but was cautious when it came to corporate finance.

"While the corporate finance division has a strong pipeline of opportunities . . . it is unrealistic at this point in time to expect it to achieve the same level of net revenue in 2007 as was achieved in 2006," he said.

Shares in BNB were trading at $28.40 by close of trading yesterday, up 0.5 per cent on the day.

"Once again BNB have over delivered on their results and they still have a strong pipeline in 2007. There was some intra day weakness in the share price, but that was due to some investors expecting higher earnings guidance," Walker said.