Boart Longyear: high risks and even higher rewards
This week's Hot stock is courtesy of Invast.
Boart Longyear ASX: BLY Closing share price 12-7-16: $0.11 52-week high: $0.13 52-week low: $0.04 Most recent dividend: N/A Annual dividend yield: N/A Franking: N/A
Please note from the very beginning, this is a high risk stock.
If you're after consistent dividends and modest growth, Boart Longyear (BLY) is not for you.
And if you want diversification and rosy narrative around business growth, BLY is not for you.
If, however, you are looking for a high risk and even higher potential reward type scenario, BLY is very interesting at these levels.
The stock has almost tripled from its yearly lows near $0.04 per share. It is now trading at around $0.11 but this still translates to a price of about $0.01 if shares were purchased at the IPO many years ago and no participation was made into equity raisings.
At its current share price, the market cap is $100m. Add to that a sizeable debt burden of around US$640m and the picture starts to make more sense. BLY shares are an option-like instrument on the business staying in business.
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 $1bn. With 3300 employees and 911 drilling rigs, that doesn't seem too expensive if operating earnings can resume with a gold price rally. Speculative buy at these levels.