Yes, this company had a near-death experience two years ago, but...

Yes, this company had a near-death experience two years ago, but the worst is certainly behind it.

The catalyst that was needed was for the EBITDA - NET DEBT  jaws to start opening, and given the operating leverage and the free cash flow generation, that is now well underway, with Net Debt-to-EBITDA likely to finish the current half at an undemanding level around 2.2.  

That's the lowest level in 5 years.

NIBD-to-EBITDA (Times)
DH2011: 1.9
JH2012: 1.7
DH2012: 1.9
JH2013:  2.8
DH2013: 2.1
JH2014: 3.5
DH2014: 3.2
JH2015:  13.7  (Gulp! Banks step in here and set the agenda)
DH2015: 3.9
JH2016: 5.6
DH2016: 5.3
JH2017: 4.0   (Banks take their foot off the throat of the company)
DH2017: 2.2  [F]
JH2018:  2.4  [F]
DH2018:  2.0 [F]
JH2019:  1.7 [F]

("[F]" = my forecasts, for what they are worth)


The reason this is very important is because, in order to bid for new business, it requires them to be able to invest in working capital, which could require anything between $6m and $10m over the next 12 - 18 months.   

Sure, it will be a quality problem to have, because it will mean that demand for their services is strong, but unless they have the balance sheet to support it, they won't be able to participate in the cycle upswing currently underway.

The earnings trajectory is clearly on the up [*], but one should be aware that there have been some significant changes within BOL over the past few years, which will limit the upside in terms of earnings potential, and that is that they today have only half the installed asset base that they had during the commodity boom:  because, in order to keep the banks at bay during the resources sector slump, a large chunk of their assets were sold off, and at bargain prices, presumably.

So BOL today sits with PP&E of around $170m; at the peak of the cycle it was over $360m.

So one shouldn't expect BOL to hit EBITDA anywhere near the $50m to $60m pa levels they reached in 2011/12/13.   They just don't have the capability for that these days.

I thin the maximum sort of EBITDA they can generate based on current capability is $25m pa, maybe $28m - $30m if the pricing environment really tightens up meaningfully.

And, as can be seen from my forecasts below, the company could be approaching that sort of run-rate in around 18 months' time.


So while I think the stock price will continue rising as the market continues to anticipate further "upgrades" over the next 12-18 months, I think there is zero chance that the stock price will reach the 50c-levels reached at the peak of the resources cycle.

I think 30c is possible, but even that will be a stretch.


[*]  BOL EBITDA ($m)
DH2011: 30.0
JH2012: 33.1
DH2012: 32.8
JH2013:   20.7
DH2013: 24.1
JH2014: 12.7
DH2014: 12.0
JH2015:  2.6
DH2015: 6.7
JH2016: 4.4
DH2016: 4.3
JH2017: 5.5
DH2017: 9.0  [F]
JH2018:  8.5  [F]
DH2018:  10.0 [F]
JH2019:  12.0 [F]

("[F]" = my forecasts, for what they are worth)