Small Cap Favourites: Boart Longyear Limited
We published a Hot Note to Invast clients last week outlining BLY recent comeback from a low of $0.04 per share to $0.10 as of the end of last week. It’s been a tough for years for one of the world’s largest drilling companies. History is important, Boart Longyear has been around for many decades and survived in one shape or another many cyclical downturns. This time, the situation is still dire. The company is by no means out of trouble and only a significant gold rally could save it from here.
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We might, given central bank money printing at unprecedented levels, be experiencing that gold price readjustment. Gold drilling is important to BLY. It represents just under half of its total revenue base. As we explained last week, at $0.10 the market cap is roughly $100m. Add to that a sizeable debt burden of around US$640m and picture starts to make more sense. BLY shares are an option like instrument on the business staying in business. Copper is another key market to watch, the spot price has been hammered and represents around 20% of BLY drilling revenue. Even a hint of a copper price rebound and BLY shares would respond favourably.
But we aren’t hanging our hat on copper. Gold is still the key driver here as a counter currency play. Industrial commodities are out of the picture.
The debt is so large that the equity value is not taken seriously. But with a heavy exposure to the gold drilling industry, the market is now starting to reprice the equity component. Even if the share price was to double from these levels, BLY would still have a firm value when including debt less than $1.5bn. With 3,300 employees and 911 drilling rigs, that doesn’t seem too expensive if operating earnings can resume with a gold price rally.
Invast is very well placed to bring you some huge opportunities in the coming months. Execution costs for ASX stocks are 0.06% (6 basis points), which means for a trade with a notional exposure of AUD $10,000, the applicable commission is only AUD $6.00.
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Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.