| User | Post |
|
8:11 pm
December 3, 2009
|
Jae Jun
| | |
| Admin
| posts 1453 |
|
|
Well I actually changed it back to FCF growth but there is an override input box. Sometimes the growth and CROIC is just too large.
From memory I think FCF growth for BOLT is like 90% or something. Clearly that can't be correct so I made adjustments. Just don't take numbers at face value.
I have also updated my spreadsheet to be 7 instead of 8.5 and 1.5x instead of 2x.
|
|
|
3:29 pm
December 3, 2009
|
moneymaker
| | canada | |
| Member | posts 12 |
|
|
Post edited 12:33 pm – December 3, 2009 by moneymaker
JJ,
I am newbie and very interested in your workings however have a coupel of questions based on your assumptions.
For your DCF and Graham calculation, how'd you assume the 9% growth rate? Under the DCF spreadsheets, you had advised to use the CROIC rate which in this case, the median rate would be 3.8%.
Furthermore, have you updated your Graham spreadsheets to reflect the '1.5x instead of 2xgrowth'? As my calculations using the spreadsheet with 9% growth, 0.93 normal earnings yields $22.26, 51% MOS.
Look forward to your reply and keep up the good work!
|
|
|
6:44 pm
November 26, 2009
|
Jae Jun
| | |
| Admin
| posts 1453 |
|
|
I do agree that mergers isn't the best way to grow. Of course we all want a company to grow organically but there are instances where acquistions make sense, as long as it is smart.
This is what the CEO wrote in the annual report.
"During fiscal 2009, we continued and intensified our search for suitable acquisition opportunities. Our searc is focused on strong oil field service companies that manufacture and sell proprietary products and whose acquistion would be accretive to out stockholder value. Our senior management has spent considerable time reviewing and assessing opportunities and we continue to do so. We believe our strong financial position, including our cash balance, shoud facilitate our ability to capitalize on a acquistion opportunities."
So you are probably right that an acquisition is coming.
BUT..
how much of a red flag is an acquisition? I know of companies that just try to acquire anything in order to inflate EPS and these companies all have terrible historical records of both operational and managerial performance. But there are many companies where smart acquisitions have led to increased shareholder value.
e.g. MHH is a current holding of mine that seek to grow by making smart acquisitions. It still doesn't make the company risky at all because from what management has been doing for the past 10 years, I can see that they don't jeopardize shareholders.
Another would be KTII which I recently sold. Great company, great management and they made great strategic acquisitions which increased the intrinsic value.
From what I see with BOLT, management seems to be capable and knowledgeable. They don't acquire anything too often and they haven't screwed anything up so far.
For me, acquisition hungry companies should be avoided but most companies will need to acquire in order to grow once they start filling their niche.
I guess what I'm saying is that KO or PEP wouldn't be the same company today had they not acquired other brands. Once they filled their market, they needed additional reach and so they got into the water, juice and other niche markets.
KO and PEP may not be the best example though.
|
|
|
3:00 pm
November 26, 2009
|
Pete
| | California | |
| Member | posts 5 |
|
|
Gordon, you're right that the acquisition would make BOLT a riskier bet. BOLT seems to be a great company that's just facing some tough cyclical headwinds. At these prices it has a great margin of safety and big growth potential. Most importantly, it would most likely be fine without making a purchase.
If they did make acquire MIND, what would they get? If they paid $90m for MIND (30% premium) they would be getting about $65m book value of rental equipment. That BV is likely understated due to depreciation. They would also get the Seamap division that designs and manufactures (outsourced) equipment, much like BOLT. Normalized Op Income would be $15m-$18m. So a $90m price tag would be 5-6 times normalized op income. Sounds a little pricey to me, but maybe they could squeeze come cost savings. Or they know something about the market dynamics that lead them to think that equipment rentals are going to become a more popular choice for the exploration companies.
|
|
|
2:55 am
November 26, 2009
|
gordonm98
| | |
| Member | posts 3 |
|
|
It's an interesting proposition, however, if you are correct about MIND, that could make BOLT quite a bit riskier than if it would just stay a plane boring predictable business that made it pop up on Jae's radar in the first place.
I took just a quick look at MIND, and obviously I'm not nearly as familiar with it as you are. What you are saying may make sense, and this could indeed be a good fit, but I'm sure you'll agree with me that M&A's often cost dearly shareholders of the company that does the acquiring.
So the question is, does the current BOLT price take into consideration the potential extra risk of this company being restructured (with either debt or equity sale) and then integrated with another corporation? Even if the business rational makes perfect sense, I think it boils down to management's track record with integrations. It looks like BOLT acquired its RTS division a couple of years ago and that seemed to have been working fine, although that deal did not require taking on a large debt or extra equity because it was comparatively smaller. And if your time horizon is shorter then maybe this is not an issue if you are not planning to stick around to see the merger results.
I would argue that until it is more clear if this extra capital raise actually takes place and what the gameplan is, that the margin of safety may not be as high as it seems, particularly because BOLT mgmt does not own a large chunk of the company and thus may be more concerned with size of the enterprise (bigger salaries and perks) rather than doing what's best for the shareholders.
|
|
|
2:54 am
November 26, 2009
|
Vince P
| | |
| Member | posts 19 |
|
|
Wow, BOLT was the first stock I ever owned, back when it traded on the AMEX. I believe the ticker was BTZ back then….but it worked well then and is definitely worth a look again at where it's trading now. Yes, I still own shares.
|
|
|
12:30 am
November 26, 2009
|
Pete
| | California | |
| Member | posts 5 |
|
|
Great find Jae.
I've spent some time covering another company in the same field, MIND. It was the subject of a terrific write up on Value Investors Club this summer. MIND's core business is seismic equipment rentals, although they do have a small division that makes and sells marine seismic devices. They too have been killed by the slump in oil prices.
The reason I bring up MIND is they could be a target for BOLT and the reason for the $50m shelf offering listed in the S-3. MIND has a EV of ~$70m. A $50m capital raise+$30m on BOLT's books+some financing could easily get them MIND.
MIND has a few moving parts right now and its best to read the VIC write up to understand the intrinsic value. The basic story is that they've spent mightily to build up their rental equipment pool which will give them tremendous operating leverage when oil prices come back, or the economy rebounds. If BOLT wants to diversify into the rental space this would be the place to start.
|
|
|
8:35 pm
November 25, 2009
|
Jae Jun
| | |
| Admin
| posts 1453 |
|
|
Post edited 5:38 pm – November 25, 2009 by Jae Jun
I just looked up what an S-3 form was and this is what I've found
Form S-3 is typically filed in conjunction with a common stock or preferred stock offering. Other requirements for the form's use are that the company has met all dividend and debt requirements in the 12 months prior to the filing date on the form.
So considering BOLT balance sheet and how they have no long term debt, I don't think the common or preferred stock offering is it. More like a submission that they have been meeting all requirements throughout the year.
It could actually mean that they are on top of everything.
What do you think? I don't see why BOLT would acquire anyone. They are the ones that need to be acquired. Too small to eat anything else.
disclosure: I did manage to buy by full position today. It's a buy and wait situation on BOLT.
|
|
|
8:21 pm
November 25, 2009
|
gordonm98
| | |
| Member | posts 3 |
|
|
Jae, thank you for bringing up BOLT, I also looked at the numbers and agree they are checking out fine. However, there is something that could be a red flag, and I'd like to see what you or the folks in the forum think about this.
The company recently (9/28) filed an S-3 Form, basically a registration for a $50m offering that could be common, preferred, or debt (you can find it on Edgar). This is the first time BOLT filed this form so there is no history to turn to. I could not find any mention about this in the annual or qtrly reports.
Does anyone knows anything more about it? Maybe from the shareholders meeting that should have taken place yesterday? They may be paving the path for an acquisition however this could be dilutive to existing shareholders, so I'd like to hear your thoughts on what the impact may be.
Disclosure: No current position in BOLT
|
|
|
11:51 am
November 25, 2009
|
chiawei8312
| | |
| Member | posts 19 |
|
|
Excellent find, their CROIC is amazing must have some good management
|
|
|
1:07 am
November 25, 2009
|
Jae Jun
| | |
| Admin
| posts 1453 |
|
|
For the loyal forum visitors and contributors.
BOLT is a company that I have valued on and off throughout 2 years. I just recently came upon it again while looking at the Forbes list and it's finally come down to my 50% MOS.
Solid fundamentals. If you look at the numbers it's excellent.
Only reason it has been hit so hard is because of when oil prices went down so much after the commodity bubble.
My very conservative assumptions
DCF: 15% discount rate, 9% growth rate, FCF adjusted to $10m = $17.99 = 44% MOS with very conservative inputs.
Graham: 9% growth, normal earnings of $0.93. (I also edited my graham formula to use 1.5x instead of 2xgrowth) = $16.60 = 39% MOS
EPV: 15% discount rate, Normalized income of $11.2 = $12.33 = 18% MOS with 0% growth. But this company is definitely growing.
9% discount rate considering the company has still always had positive FCF and it's worth $18
Competitors: Even by looking at the competitors I can see BOLT should be $20. It is just too cheap compared to anything. This is just like how I believe MHH to be best of breed but no one knows about it.
BOLT should be at $20.
|
|
Home
