Galba – I am not that concerned how the market reacts to BYL – my prime interest is BYL's business performance as it relates to EPS and DPS in the long run.
Cash Flow & Capital Raising
I do not think BYL will want to do a capital raising at circa the current SP, and neither will it be forced to do so. However, one never knows the shenanigans that management of listed companies get up to, aided often by ASX Rule 7.1. Cashflow could improve if the insurance money and the MRWA-contract-variation money are settled fairly soon, and there is no reason to believe that this will not happen. Secondly, management would not have needed to negotiate more generous latitude when the original loan facility was established, and so the covenants may now be easily renegotiated if BYL has a sufficient story to tell, which I think it has.
A capital raising at a low SP would dilute the considerable holdings of the Brierty family, unless they too participated in the ratio of their holdings to the total holdings. It would also be easy for the family to lend BYL a few million. I understood they did this years ago, but I have not found evidence of a loan, so the Brierty family may simply have used their considerable assets to give the lending bank the required security, which is on record as having occurred some years ago.
A capital raising would also make it more difficult to hold the DPS and EPS trajectories, which BYL is already struggling to hold as the result of the recent 15% dilution. Mind you, if management seeks the advice of Bell Potter, they could be beguiled into a capital raising – perhaps even a hostile-to-retail-shareholders one that gives preference to “sophisticated investors” in a capital raising pursuant to ASX Rule 7.1. A “sophisticated investor”, must be certified by a qualified accountant, stating that the investor has net assets of $2.5 million and/or gross income for the past two financial years has been at least $250,000 a year.
Securing Business, Margins & Expenses
BYL does not seem to have a problem securing new contracts. I do not expect this is because BYL's gross margins are paper slim – the slimness of BYL's NPAT margins for many years seems to spring from its seemingly-higher-than-necessary head-office expenses. For the last twenty years of my working life I made a living advising large organisations how to reduce expenses, and where I had a gut feel that I would find wastage, it nearly always turned out to be the case. Tell-tale early signs are wanky premises, involvement in warm-feeling and self-agrandising causes (charities and sporting and local events), and key management focused on yachts or horses or other puerile interests. Within hours of being on a site, I usually found other indicators of a wasteful mindset would sprang to notice.
Disappointed with FY2015 Results
Even if BYL's underlying NPAT transpires to be at the top of the range provided by management, it would only deliver an underlying EPS of 7c for FY2015, whereas I expected 8c. The results and managerial comment that will be thrown up for H1 of FY2016 should be instructive.
BYL Price at posting:
24.0¢ Sentiment: Buy Disclosure: Held
