Boom Logistics (BOL)

Value trap = value stock without a catalyst

BOL so far has been a perfect value trap, and if I didn't already appreciate what a value trap was, being a BOL investor has certainly has taught me that lesson. I apologise if anyone has followed me so far on this one and not made money. To recap on the original reason for buying (see some of the original posts here, here and here), the core idea was the huge gap between market cap and NTA. It is still monstrous: market cap $57m (12c/share) v Net Equity of  $227.5m*; a 75% discount. *Estimate based on the last management update of net debt $72.8m and gearing of 32%. Note that most of the intangibles have already been written down, so NTA is within ~1% of net equity. 

BOL has lots of exposure to mining which you don't need me to tell you is in a world of hurt. So BOL keeps the bad news flowing and has completely failed to initiate the stock buy-back and has instead kept on paying down debt, helped partly by the sale of surplus assets. 

This isn't news. The question is what to do: a company that will probably continue to experience an indefinite period of operational toughness thanks to mining, a slow Australian economy and unions sucking the life out of the business YET trades at a massive discount to NTA. 

We are missing a catalyst.

Management need to get their heads out of the sand and act. As noted in previous posts, if the NTA is anywhere near correct, then speeding up the asset sales process and simultaneously buying back it's own stock at a fraction of physical cost just has to be a smart move - it's called arbitrage! At the current prices, the arbitrage difference is 4 times, or sell something for a $1 and buy it back for 25c. Management have fobbed off the buy back until once the company has a more stable earnings outlook and current volatility in pricing pressures and activity levels have settled (page 5, half year report to 31 December). This business will always inherently be cyclical thanks being exposed to cyclical industries. But with an opportunity to buy-back the farm at 25% of the balance sheet value, who cares about stability or the earnings outlook - in fact if the earnings outlook is that bad then surely it makes even more sense to sell more assets at current prices? Surely there is plenty of risk to the downside to asset prices if the tough times continue? The argument to buy-back only gets stronger as debt levels continually reduce and management keep proving that either they can't run the business effectively or the macro headwinds are just too strong. Again, as noted in previous posts, as the market cap is so small, it won't take a massive buy back to move the price along.

Other than management, we can of course hope for a lucky break through a takeover/merger or a big uptick in the economy and crane hire business. That however we would be exactly that - a lucky break. Unfortunately I'm not the lucky type of guy. I don't know what other catalysts can get the price moving.

Shareholders have simply not been rewarded for their investment and therefore I believe it's now time for a change of management to shake things up. I hope the board agrees. 

Kristian

Disclosure: own BOL