"Given cranes are being sold in the market well in excess of...

"Given cranes are being sold in the market well in excess of NTA, BOL depreciates far more quickly than offshore peers and it has already impaired its asset base materially, the true NTA is likely north of 31 cents. "

Whether or not BOL depreciates faster, or slower, than its offshore peers is irrelevant. The ultimate arbiter of whether or not depreciation policy is appropriate is how much capital - if anything - the company raises when it permanently ceases to enjoy the use of the asset, for example, if it sells the asset or it scraps it at the end of its useful life.

And the precedent is that BOL has always recorded losses on the sale of assets.

Now it could very well be that the reason for that is that they were distressed sellers at a time when the demand for cranes was at an all-time low, but the point is that there is no precedent for BOL systematically and overwhelmingly booking profits on asset sales.

So, while based on history one can argue that, if anything, BOL in fact under-depreciates its assets; but there is no way one can conclude that BOL over-depreciates.

Besides, that's quite a moot point anyway.

Because, sure, they can write-back impairments if they can justify doing so to the auditors (although the financial modelling behind such write-backs would need to be extremely creative with some aggressively libertine assumptions).

But why would they do so, anyway, given that the recording on an increase in asset values could potentially give rise to a tax liability?


"Hence, a buyback is likely value accretive up until 35-40c at least. "

With respect, this is nonsense.

Based on basic valuation theory, there is a relationship between Price-to-Book (P/B) value and Return on Capital (ROC). In a perfect world, a company whose ROC equals its weighted average cost of capital (WACC), will trade at P/B = 1.0.

If a company generates ROC in excess of its WACC, then its P/B will exceed 1.0 (because economic value is being added to the equity of such a company).

Conversely, when a company's ROC is less than is WACC (which is BOL's case), P/B will be less than 1.0 (i.e., the stock will trade at a discount to its book value).

So, even if BOL write up the value of their assets - nothing changes in the underlying profitability of the business - meaning that ROC will go down, and therefore P/B will fall in accordingly, in line with valuation theory.

The net result, no change in the market value of the company.

Because, based on your suggestion, company managers can simply write-up the value of their assets and initiate buy-back up to those new, elevated levels, and those managers can claim that they are doing something "accretive" (and, indeed, reward themselves on that basis).

Sure, a company can undertake a buyback on the basis that it is"accretive" based on its market price compared to its earnings, but not based on its market price compared to its book value when that company's ROC are less than its WACC. Because then such a buyback would - by definition - be destroying shareholder value.


But, any talk about buybacks is all a bit moot, anyway, because - given its current level of debt, as well as the likely calls on capital of the business over the 12 months - BOL is not in the financial position to undertake a buyback in any way other than on a mere token basis.