Boom Logistics (BOL)

In my previous post I cracked it about the yet-again deferral of the share buy-back. We recently met with management to discuss the situation further. In a nutshell, the main focus is conservatism, with debt reduction being a key theme along with reducing costs. A debt facility of $105m (total debt is currently $98m, net debt $89m) needs to be paid down to $75m by January 2017. With the combination of some more asset sales and free cash-flow from operations, I think they will get there much faster than that date. 

While paying down debt does not have the same potential impact on the share price in the short term as a buy-back, shareholders can at least have some comfort that money is not being squandered or misallocated on projects that may or may not work. Every dollar of debt reduction reduces risk (and also reduces the banks bargaining power) and therefore increases the value of the equity.   

The fact they are making any money at all given they have such a big exposure to mining is probably testament to management making hard decisions and being conservative. 

However the market is wary of BOL thanks in part to missed assertions/forecasts by management. This reputation needs to be repaired, and I can only hope they don't come out and make promises in the future they don't deliver on. 

Over capacity of cranes in Australia is an ongoing issue and will take some time to fix however there appears to be a reasonable overseas market which BOL has sold some older stock into. I think it would be interesting for an entrepreneur/private equity firm to run the numbers to see if an arbitrage could be made by buying cranes in Australia and selling them overseas. BOL is an operator of cranes, not a trader, so it's not likely they will go down that track. In the meantime, life for crane operators could easily get worse before it gets better. 

While I'm sounding like a broken record about a share buy-back, the logic of my investment in BOL is straightforward and remains the same: with current management I don't think the company will go broke. And the upside is massive compared to the downside - even if you think it could go broke. Nicholas Taleb preaches the idea of embracing optionality, which is what I found at APW. BOL has does lots of problems but optionality galore. 

Kristian 

Disclosure: own BOL

Australasian Wealth Investments (AWI, nee AWK and MEF)

Previous article here.

I previously had a position in AWI some months ago and managed to lose some money on the trade, despite having identified a good opportunity before most others in the market. In my last post, I noted how AWI (which was previously an LIC called MEF) was transformed into a financial services business. The initial story was InvestSmart was bought (for a song) as a managed fund distribution platform and a stake in van Eyk Research was also purchased. Coupling the two together would be the seedling of an Australian business to one day rival businesses such as the UK Best Invest and Hargreaves Lansdown. And after meeting with management a few times, I concluded I really liked the idea, management and the (then) cheap valuation.

Amazing how things can change. 

Subsequently, a new CEO was inserted on a monster salary and the company also went on an acquisition frenzy. This not only added unnecessary cost, but very quickly, the initial strategy seemed to be blurred as new acquisitions were made on bigger multiples. It's really hard to buy businesses quickly and try and glue them together, and the businesses they bought appeared disparate to the initial vision for the business. Without going into it, van Eyk clearly has lots of problems. Buying Intelligent Investor for over 6 times earnings was probably paying twice what it is worth, especially in the context they had already launched a managed funds business and therefore people in their database that were agreeable to a managed fund product had probably already invested with them (now Forager). 

After pondering this trade, I conclude my reasons for buying were pretty solid and pretty much within my investment style. The mistake made was to hold as the leopard begun to change its spots and holding on for the 'concept', not value. That style of investing is for others, and not me. 

For me, it has become increasingly easy to decide whether to make stock decisions based not on how cool the story sounds, but simply whether it fits my value investing style. This approach saves a lot of work, imposes a good discipline, and oh - makes more money. 

Kristian

Disclosure: no position in AWI