##{"id":58148,"date":"2011-05-16T17:09:06","date_gmt":"2011-05-16T07:09:06","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/05\/16\/boart-longyears-earnings-risk-is-to-the-upside\/"},"modified":"2011-05-16T17:09:06","modified_gmt":"2011-05-16T07:09:06","slug":"boart-longyears-earnings-risk-is-to-the-upside","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/05\/16\/boart-longyears-earnings-risk-is-to-the-upside\/","title":{"rendered":"Boart Longyear’s Earnings Risk Is To The Upside"},"content":{"rendered":"

\n\t– Boart Longyear reiterates guidance at AGM
\n\t– Lack of an upgrade may be disappointing but reflects conservative management
\n\t– Positive earnings expectations see stock continue to be rated highly<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tLast Friday Boart Longyear ((BLY)) held its annual general meeting and at the meeting earnings guidance for FY11 was reiterated. This guidance implies revenue of around US$1.75 billion and EBITDA (earnings before interest, tax, depreciation and amortisation) of US$300 million.<\/p>\n

\n\tBoth RBS Australia and Credit Suisse see this guidance as conservative, as market conditions continue to improve. This is supported in Credit Suisse's view by a ramp-up in capex among junior explorers in the commodities sector, which is driving strong utilisation rates and price increases for equipment.<\/p>\n

\n\tAs well, Credit Suisse notes Boart Longyear enjoys translation benefits from a strong Australian dollar, as Australia generates around 20% of group revenues. To reflect this, Credit Suisse currently sits about 10% above guidance with its forecasts, having lifted earnings estimates by an average of 6% post the AGM update.<\/p>\n

\n\tRBS Australia also suggests risk to earnings is to the upside, noting of the factors identified by management as impacting on earnings the four positives are all present and likely to persist. These risks are a continued acceleration in pricing and margins, full demand for global rigs, a return of capex among junior mining companies and increasing commodity demand.<\/p>\n

\n\tIn contrast, only one of four downside risks, abnormal cost pressures, is a significant specific concern for Boart Longyear but should be offset by improved pricing in RBS Australia's view. Other risks such as a China slowdown and global political disruption are possible, but would be of concern beyond the impact on Boart Longyear.<\/p>\n

\n\tThe key to the share price of Boart Longyear according to RBS Australia is current forecasts are below previous peak revenue and margin conditions, yet the market appears to be approaching these peak pricing conditions. This means upside risk for earnings and should see ongoing support for the share price.<\/p>\n

\n\tRBS Australia maintains a Buy rating on Boart Longyear, while Credit Suisse has upgraded to Outperform from Neutral. The upgrade is supported by the increases to earnings estimates, which sees Credit Suisse lift its price target to $5.00 from $4.80 previously. Overall the FNArena database shows Boart Longyear is rated Buy six times and Hold once.<\/p>\n

\n\tThe consensus price target according to the FNArena database stands at $5.20. Citi is the leader with a target of $5.60. As with Credit Suisse and RBS Australia, Citi takes the view market earnings forecasts for the company are too low at present given the trend of rising capex in the resources sector.<\/p>\n

\n\tMacquarie was similarly positive last month, lifting earnings forecasts by 9% for FY11 and by 4% for FY12 given the positive operating environment at present for Boart Longyear. As most in the market had expected an upgrade to guidance at the AGM the lack of any change may be viewed as a disappointment, though Credit Suisse argues it is simply management adopting a conservative stance.<\/p>\n

\n\tOver the past year the shares have traded in a range of $2.56 to $5.01, the consensus price target of $5.20 implying share price upside of around 18% from current levels.<\/p>\n

\n\t <\/p>\n

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