Ann: Full Year Results - Investor Presentation, page-59

@Frothman,

For starters, $8m for four months does not automatically translate into $24m for 12 months, which is what you are inferring. The reason for that is that December and January are invariably much quieter months.

I think they will do well to generate $9.0m EBITDA for the current half. And there are some big maintenance projects that are contributing to the current half's performance that are ending and so will cause a drag in the second-half.

So I think FY18 EBITDA will come in closer to $16m,than $24m (and even that $16m figure implies EBITDA growth in JH2018 of 33% on JH2017).

The company's current market cap is $100m and it has around $45m of Net Debt, so an Enterprise Value of around $145m.

So that equates to an EV/EBITDA multiple a little over 9x.

For what this business is - and it is a very poor business - that's a pretty full valuation multiple.

Of course, no one who owns BOL today does so for its financial performance this year; rather, they own it in anticipation of what its earnings potential could be as the demand for its services recovers in future periods.

So, what could that scenario look like? Well, for starters, I certainly think any EBITDA numbers close to $60m are the stuff of dreams, for two reasons:

1. BOL's operating asset base has been materially reduced during the cyclical downturn - over the past 4 years, BOL invested $30m in PP&E. By comparison, it sold $70m of assets, and wrote-down $120m. Carrying value of PP&E is $178m today, compared to $370m in the days of >$60m EBITDA.

2. The conditions in the market that gave rise to BOL's +$60m EBITDA days were unique: the resources boom caught everyone by surprise and mining companies were under severe pressure to complete projects on time in order to capitalise on soaring commodity prices. So - when it came to procuring services for construction projects - money was no object and the mining companies paid up big for services, almost without querying. Because all that mattered was completing the job, even if it mean blowing the capital budget, because that still made economic sense. So the rates for inputs into the construction of mining projects went through the roof.
By contrast, the impending infrastructure boom, if it happens, will not be nearly the same thing. The preparatory leads times for major infrastructure projects are a lot longer, and the criticality of timely commissioning is not as much an economic imperative as getting a mine up and running was when the iron ore price was $150/t (or whatever level it reached). Also, because infrastructure projects are funded largely by government agencies, budgetary considerations will be far more restrictive.

So, then, how much EBITDA could BOL generate today if the cycle took off?

To this end, to help me make assumptions about future financial performance, I always find it useful to draw upon precedent .

Starting with Revenue. Unsurprisingly for a capital-intensive business, demand for whose services is very cyclical, BOL's Revenue-to-PP&E varies quite significantly over time.

During the peak of the commodity boom (2008 to 2013), it averaged 1.0, with a peak of 1.09 in FY2009. And during the cyclical slump following the resources boom (2014 to 2017), it has averaged a touch under 0.8, with the low of 0.72 recorded in FY2016, from which it recovered to 0.81 in FY2017.

BOL's PP&E Turnover (Revenue-to-Average PP&E)
FY2008: 1.06
FY2009: 1.09
FY2010: 0.84 (distorted by GFC)
FY2011: 0.99
FY2012: 1.04
FY2013: 0.98
FY2014: 0.85
FY2015: 0.75
FY2016: 0.72
FY2017: 0.81


Now to EBITDA margins.

Again, cyclically very variable, ranging from an average of 18.2% during the peak times, to 9% during the cycle trough:

BOL's PEBITDA Margins (%) [Excluding NRI's]
FY2008: 21.5
FY2009: 17.8
FY2010: 16.7
FY2011: 16.5
FY2012: 18.2
FY2013: 15.9
FY2014: 13.7
FY2015: 7.2
FY2016: 7.2
FY2017: 6.6


Now, to give us some idea of the BOL's potential EBITDA going forward, if we take the averages, over the peak of the cycle, of Revenue-to-PP&E (namely 1.0) and we apply that to current PP&E of $178m, that gives us an indicative Revenue of around $180m (cf. FY2017 Revenue of $150m).

And then, applying the 18% cycle peak EBITDA margins to that $180m of Revenue yields potential peak cycle EBITDA of around $33m.


The next step is to determine at what sort of valuation multiple one would be happy to pay for a company like BOL at a point near the top of its earnings cycle.

Personally, given BOL's weak business model and its parlous track record of destruction of shareholder capital, I would not pay much more than 5x EV/EBITDA (which, incidentally, corresponds to a P/E of 13.5x) as a cycle peak valuation multiple.

Capitalising $33m of EBITDA at 5 times gives an Enterprise Value of $165m.
Netting off $40m of Net Debt means $120m of Equity Value, or 26c per share.

For context, even a 6.0x EV/EBITDA (equivalent to a lofty 16x P/E), the resulting equity value is 33c per share.


The point of the above exercise is to indicate that any talk about the share price going to 40c or more is not supported by any test of reasonableness. And in relation to a 52c per share corporate offer made for BOL in 2009, that's not very relevant today because BOL was a different company back then, enjoying in once-in-a-generation favourable business conditions.

Sure, some drunken sailors could come sailing over the horizon bearing wooden chests filled with gold doubloons offered in exchange for my shares, but that's hardly any basis for investment in a business.


As for talk of buybacks, that's just ludicrous given the current capital structure of the company and the calls on capital it faces. This company has never before bought its own shares and there is no reason for them to start doing so now. [*]

In terms of BOL buying other companies, well... given the simply woeful track record these guys have at allocating capital effectively, were they to commence an acquisition quest, I would sell straight away, because I've seen that movie a few times, and it doesn't end well.


[*] Over its life as a publicly-listed company, BOL has taken an astonishing $217m more from its shareholders than it has given back to them. This is not a company capable of returning capital to its shareholders in any meaningful or sustainable way.