If this is too long, I apologise. I'm simply posting my analysis here for anyone to pick apart (please do). Here goes...
Let me start with this:
This is a horrible business - something tells me that the assets are not worth as much as the balance sheet says there are, especially not if it goes belly up.
What do you think the assets are worth?
I realise Ves' post is now close to two years old, but given the 'manage for cash' scenario that management are aiming for, it's quite a valid question... but let me twist it a bit, and pose the question as:
As a shareholder, at what value do these assets make this company worthwhile?
First, value of assets:
I took the most recent balance sheet and applied a multiplier on current assets to find recovery rate on each, assuming a gloomy scenario:
- Cash at 100% = $5,850
- Receivables recovered at 90% = $47,480 (depends on client base - big miners not a problem)
- Inventories at 70% = $291
- Prepayments at 90% = $3,617 (depends on suppliers - not sure of who they are at this point, but not a huge impact)
- Assets for Sale @ 50% = $3,530
- Income Tax Receivable at 100% = $4,450
Total Current Assets after adjustment = $65,217
Next, I calculated the required sale price on non-current assets to pay off debt and return capital to shareholders at current price (13.5c per share, Market Cap 64m):
Total Liabilities = $158,016
Operating Lease Commitments = $30,759
Total Liabilities with operating lease = $188,775
So, Total Liabilities (op lease incl) - Total Current Assets = $123,558 (lets call this
'Remaining Liabilities')
Total Non Current Assets = $328,710
Total Market Cap = $64,000
(Fraction of Remaining Liabilities + Market Cap) to Non-Current Assets = ($123,558+64,000)/$328,710 =
57%
So, for the company to pay off all debts (if done without calculating interest) and return capital equal to the current share price (13.5c) to the shareholder, the assets would need to sell at 57% of their balance sheet value - and this is without factoring in running/management costs.
Given the depreciation rates the company use (10/20 year terms on cranes/vehicles) and the macro environment, I'm not 100% sold on this... even though there have been no recent impairments relating to assets sold.
However, there's still operating cash flow to consider:
Cash Flow
BOL are managing for cash flow, and have adjusted their capex to reflect this.
- In FY2013, total capex on new equipment was 62.34m
- In first half FY2014, total capex on new equipment was 7.8m (focus on 'non-specialised equipment). No spend on software
- In second half FY2014, 'committed' capex on new equipment is 3.2m.
So there's already an 11m outflow of cash...
Asset sales were $9.9m for the half (which was the stated target for the full year), which are ahead of target.
Let's assume half of this figure for 2nd half asset sales, as "assets for sale" have decreased by 30%. So another 4.9m cash flow.
That's a 14.8m cash inflow
And finally, operating cash flow for the half was $11.4m.
The third quarter is always weaker (as recently stated), resulting in a 1.8m EBIT loss. Adjusting for quarterly interest payments (2.4m) and quarterly depreciation at the rate stated in the first half (5.5m), cash flow was 1.25m for the quarter... not great.
And assuming Q4 resembles Q1 and Q2 (as it has over previous years), cash flow should be 5.7m
Total Operating Cash flow for FY14 = 18.35m
Total cash flow = 14.8 + 18.35 - 11 = 22.15
Share price as a multiple of cash flow = 64m / 22.15m =
2.9 times
(This figure looks great, but how is my 4th quarter cash flow estimate? And will revenues fall further in coming years?
Linking the Two
The two sections above don't really flow, until you treat the first as the 'minimum required' on asset sales, and the second as 'expected' cash flow.
Of course, this is built on a few assumptions, these being:
- Assets can be sold at 57% of listed value
- Company can remain cash flow positive through operations
- Operating cash flow doesn't continue to plummet... 11.35m first half vs 26.9m pcp (Coal prices anyone? And will iron ore prices hit just as hard?)
Unknowns:
- Given 'wet-hire' (hire of cranes with labour and related equipment) requires staff on the books, how many crane operators are kept, and for how long, as work dries up?
- What percentage of revenue is not iron ore/coal related? (Can't find geographical split, and everything is listed as one segment)
- What impact have recent redundancies had (first half, 80 people made redundant, from 'over' 1000 employees)
- How reliable are assumptions/multipliers on current assets?
In summary: I think I still need to understand future cash flows a little better before I can make a call on this one.
Again, apologies for the long post...
I would very much appreciate if people could point out the flaws in this analysis - I'm treating it as a learning exercise.
Thanks