"I can see the employee expenses/ Revenue % goes up again in DH15 to 53% and I think the reason is that revenue is falling faster than the expenses cut. By reducing more cranes and heads, revenue will just simply fall further."
@medici,
I feel quite certain that the problem here - in terms of the falling in revenue - is exclusively due to not enough work being available, and not because BOL is actively foregoing revenue opportunties because it is selling off its equipment.
The reason I say this with a degree of conviction is because, based on the average revenue being generated per crane in service, I crudely estimate BOL's current crane fleet is operating at around 65% capacity.
So what they are doing - with little doubt in my mind - is selling off idle capacity, and not capacity that is currently revenue-generating.
"What do you think the chance the management will start another capital raise to help reduce the debt and get rid of the banks?
If the chance looks low to you, why?"
Well, if you read http://hotcopper.com.au/threads/feedback.2703538/#post-17957100, there's an opinion argued in there along the lines that the worst is over for BOL (if not in an earnings sense, necessarily, then certainly in term of balance sheet risk).
To understand the thesis - as I see it - for investing in BOL, and specifically why a capital raising is highly unlikely, one needs to be familiar with a bit of history involving the relationship between BOL and its bankers.
Here's my interpretation of events:
Starting from the time of the release of the company's FY2013 result, which saw BOL's JH2013 EBITDA and EBIT decline, respectively, by almost 40% and 70%, on pcp.
The banks, who at the time were owed almost $120m by BOL, must have almost had a conniption at the time when they say that sort deterioration in earnings.
When the banks sat down with BOL to discuss the increased credit risk they saw, I am quite sure that a firm suggestion of a the need for an equity raising was made by the lending syndicate.
However, the share price at the time would have been close to 15 cents, compared to an NTA value closer to 50c. And to its credit (I think), I suspect the board argued quite strongly that while the company was indeed rapidly becoming earnings poor, it was still very asset-rich, and that a better course of action for would be to monetise (i.e., liquidate) the asset base to pay off the debt.
Whatever the detail of the discussions were, the banks agreed (reluctantly, I'm sure) and, to make sure their security was the real deal, they conducted what was at the time described as "rigorous due-diligence" exercise on BOL's crane fleet.
At any rate, the upshot was an extension of BOL's $120m facility (which was due to expire in august 2014), until 1 Jan 2017. Moreover, the facility was to amortise down to $90m by the end of the term.
Now fast forward to August 2015, when the 2015 financial result was announced, showing EBITDA and EBIT having collapsed, respectively, from $12.7m to $2.6m, and $1.3m loss to 9.3m loss. The only redeeming feature of the JH15 result was that Gross Debt was $78m, down from $98m twelve months earlier (Net Debt was $71m, down from $89.5m at pcp).
But still, I imagine the banks must've had yet another conniption (their second one in less than a year), because of the sheer earnings collapse.
As a result, the debt facility was smartly tightened up, the $120m line of credit replaced with a reducing facility, to amortise down at a rate of $15m per half-year, commencing at $82.5m on 30 June 2015, down to $37.5m by 1 January 2017.
The point of this history lesson is to highlight that, in my opinion, if ever a capital raising was to have taken place, then there were these two very distinct instances over the past two years, at which this would have occurred. But it didn't.
I'll sketch my argument another way. Here's the trend in Gross Debt and Net Debt over the past several half-years, including my expectation for the upcoming result:
Gross Debt/Net Debt (all figures in $m):
DH12: 135.7 / 127.8
JH13: 119.4 / 115.8
DH13: 107.8 / 101.9
JH14: 98.1 / 89.5
DH14: 83.9 / 76.1
JH15: 78.0 / 71.0
DH15: 53.1 / 51.8
JH16: 42.0 / 39.8 (Forecast, F)
Now, given that the amortisation schedule set by the banks called for a $15m facility reduction every six months, commencing with $82.5m @ 30 June 2015, the progress the company has made in adhering to the amortisation schedule can be measured by how much headroom exists at each 6-monthly facility reduction point.
Based on the following assumptions (which, as can hopefully be seen, are not egregiously generous):
(*) Assumptions for each 6-monthly period
[DH15 actuals (shown for comparison purposes), JH16, DH16, JH17]:
EBITDA = $6.7, $7.0m, $7.0m, $7.0m
Changes in Working Capital = -$6.7m, -$1.1m, $0.4m, -$0.3m
Interest Payments = $2.3m, $2.0m, $1.5m, $1.1m
Operating Cash Flow = $8.5m, $5.0m, $5.1m, $6.3m
Capex = $0.4m, $1.0m, $1.0m, $1.0m
Asset Sales = $11.3m, $8.0m, $5.0m, $3.0m
Cash on hand = $1.3m, $2.2m, $2.3m, $2.6m
...the outworking on Gross Debt and, hence, headroom against the faciltiy, are tracking as follows:
Gross Debt Headroom vs Facility (Actual Gross Debt less Facility Limit) [figures in $m]:
JH2015: Gross Debt = $78.0m, Facility Limit = $82.5m,
Headroom = $4.5m
DH2015: Gross Debt = $53.1m, Facility Limit = $67.5m,
Headroom = $14.4m
JH2016: Gross Debt = $42.0m, Facility Limit = $52.5m,
Headroom = $10.5m (F)
DH2016: Gross Debt = $33.0m, Facility Limit = $37.5m,
Headroom = $4.5m (F)
JH2017: Gross Debt = $25.0m, Facility Limit = N/A, Headroom = N/A (F)
As can be seen, at the last measured point (i.e., 31 Dec, 2015), the company was tracking well ahead of schedule, and even with a much-reduced asset sale requirement over the next 12 months, the company will have the banks off its back - specifically in relation to their debt reduction time table - sometime in the next 6 months.
So, to answer your question, I think that the chances of a capital raising peaked on two occasions in the past three years:
1. in the December quarter of 2013, when the company owned the banks over $110m (compared to the then-market cap of around $70m), and
2. about 9 months ago, when gross debt was around $75m (still a big amount in the context of the $45m-$50m market cap at the time).
However, since then, as the company has danced to the tune of its bankers in terms of paying them their money back (ahead of schedule, to boot) it stands to reason that the likelihood of an equity issuance has declined steadily.
I put the probability of it now happening at a mere <5%.
Note: While we are on the topic of that toxic word of DEBT, there are some salient points that warrant raising in this regard.
Firstly, reflecting the heightened level of perceived risk on the part of BOL's lenders, this debt is a very expensive source of funds right now (albeit cheaper that the cost of equity capital I firmly believe).
(As an aside, it's not just the pretty lofty 7.5% rate that BOL is being charged for this debt, but there are also some material sundry fees that the banks (bless them) are charging BOL. In FY2015 the interest component of the finance charges was $5.5m, while the loan amortisation charges and other charges came to a further $2.6m. This meant that the effective interest rate BOL was being charged, in terms of its impact on the P&L, was probably close to 9.5%.)
One very important final point that warrants mentioning: Please don't think there is any correlation whatsoever between the volume of words that I've written on this stock, and the degree of conviction that I have in it as an investment opportunity. (Actually, in my experience, quite the opposite holds, namely, that the best investments don't require much debating and constant re-calibration.)
The reason I've written somewhat voluminously on this company is more out of fascination with it as an unfolding corporate drama than anything else... an interesting academic case study, if you will.
It will be nice if I can be rewarded for my modelling of the stock, by one day actually making some money out of it. But I haven't yet. Despite holding the stock for two years, and despite averaging down over that period.
While the worst is certainly behind BOL (it has taken longer than I thought), they are no means free and flying. They will only be at the "free-and-flying"stage when they are debt-free (which I think is 18 months away), or at the very earliest when NIBD falls below 2.0x EBITDA [*] (which could be the case in 6 months' time, or 12 months' time, depending on how hard management can throttle back the cost lever combined with the extent to which revenues stabilise).
So... a lot of "ifs" and "buts" hanging off this one, and it requires the planets to line up to some degree, but with most of the nasty-tasting debt medicine now having been taken, I don't see an scope for permanent downside risk.
By contrast, I can envisage a doubling of the market value of the company even without the stars having to align perfectly (and a trebling or quadrupling they do).
The only question is how long the ongoing wait that is required.
[*] Note: there a some interesting caveats that have been imposed on the company by the banks in terms of when the board can initiate a share buyback program. Those are: 1) that Gross Debt must be below $40m, and that, 2) Gross Debt-to-12-month trailing EBITDA must be less than 2.5x. By my reckoning, the company could - at an outside chance - be within those prescribed limits in 6 months'time.
With the market still being of the view that there is capital raising risk with this stock, if there was any utterance whatsoever from management that the exact opposite (i.e., a capital return) might be in prospect, I am quite certain that the share price will be closer to 18c than 8c. But, as I say, this eventuality is a possible little sleeper, but with just an outside chance of materialising, so don't hold me to it.
(20min delay)
