Maquarie. They have a outperform on BOL thismorning. The Junior miner part of their business is only 20% so the Canadian story probably wont effect them too much. Here is the Maq report.
New CFO; future MD sells shares Stock: BLY AU Recommendation: Outperform
Event
BLY announced the appointment of Joseph Ragan as CFO. This follows a search over the last 10 months. Joseph Ragan brings 25 years of financial and business management experience including senior level positions in manufacturing and services industries. Most recently Ragan was CFO of GTSI Corp, a NASDAQ-listed technology services provider; Ragan joined GTSI in 2006. Ragan also has held senior financial positions at PSEG Global and The AES Corporation (global power company). During his career, he has participated in over $4.5bn of global merger and acquisition deals. In 2007 Ragan was awarded The Washington Business Journal's CFO of the year for a large government contractor.
BLY also announced that President and COO Craig Kipp sold 5m shares in the last week. Mr Kipp held 10.214m shares prior to the sale and retains 5.21m shares post the sale (represents 0.38% of shares on issue including 494,710 rights over shares under BLY's long-term incentive plan). Mr Kipp sold part of his shareholding "in order to diversify his personal investment portfolio" and the shares were sold during a trading window post last week's 26/8 interim result. The shares were acquired in October 2005 and were held through the April 2007 IPO. These shares were in escrow until April this year.
Impact
The announcement resolves the uncertainty regarding the CFO position. At the same time, while we can appreciate there are personal investment decisions involved, the signal created by the share sale is not positive.
BLY last week posted a solid 1H08 result of US$112m, +55% on pcp. It raised its full-year revenue guidance to 25% supported by continuing demand for its products and services. Australian trade feedback suggests that demand for drill rigs is still strong (supported by BLY's strong order book in products). Anecdotes suggest that some rigs are becoming available (presumably at the junior end); however, these are being snapped up quickly by the larger players. We note that BLY's rigs are largely contracted for the rest of the year.
The juniors have around 18 months of available equity funding for exploration. While we may start to see some cash conservation at the junior end, the need to replace depleting reserves remains an important driver of exploration demand particular for the mid-size to larger players. We estimate the major miners represent 50% of BLY's customer base followed by juniors at 30% and intermediates/mid size at 20%. The next event is Major Drilling's result next Wednesday.
Earnings Revision
No change.
Valuation, target, catalyst
Due to research restrictions, Macquarie can not advise its valuation on BLY at present.
Action and Recommendation
Our recommendation is Outperform with a $2.44 price target. The stock is now trading on 9.7x FY08 PER which represents a 30% discount to the market. This is similar to global compco's such as Major Drilling, Atlas Copco and Sandvik but represents a substantial discount to domestic mining services companies (DOW, ORI, BKN) trading at 13-15x FY09.
