Primed for a break out, page-25

One of the interesting things about BOL that I have noticed is the way they have been managing their balance sheet over the past couple of years. They essentially had zero free cashflow each of the past 2 years as they used surplus cash to repay their corporate / working capital debt (a good thing). In FY22, they repaid $6.8m off their working capital debt facilities and in FY23 they repaid a further $5.7m to bring that debt facility balance down to just $11.8m. On top of this, they have their usual lease repayments which I treat as a revolving / ongoing cash outflow given the ongoing nature of fleet renewals.

With their debt levels now comfortably within their 35% to 50% gearing levels (41% as at 30th June), newly negotiated debt facilities at cheaper interest rates and also with BOL moving into a solid profit this year, their capacity to generate free cash flows (FCF) starts to jump considerably. There is no longer the imperative to pay down debt.

What this means from a company perspective, is that we could see a nice surprise in generated FCF in the coming half year accounts as the start of a longer-term trend to much higher FCF's. Their fleet program seems comfortably covered by their leasing facilities, so that seems to be settling into an annual routine of $25m or so amortisation of lease outstandings offset by a similar level of draw for new equipment leases, and they really only need to dip into FCF to support a capex spend that is increasing the fleet.

Note that they had $47m of debtors as at 30th June as the offset to the working cap drawn debt (so about $4 of debtors for every $1 of working capital debt), so there is no compelling need to pay down the debt further to have a comfortable ratio between working capital debt and working capital assets.

Bottom line - so, whilst we may see a circa $7m NPAT for FY24, the FCF could easily bump into the $10m to $14m mark if they just hold the current working capital drawn at the circa $12m drawn mark. A jump in FCF of this nature would certainly support your assessment of a $91m market cap target as that equates to 6.5x FCF (assuming my high-end figure of $14m).

The other obvious is with this level of FCF (equates to approx. 3 cents per share), they have to find something to do with the cash - dividends please!