standout performer

Hasnt BGL held up exceptionally well whilst the broader market performs daily feats of extraordinary volitility whilst ultimately slowing grinding lower.

I have been trying to accumulate back a position in BGL (after selling some down following hitting 52 week highs) however sellers are not providing much give from current levels. I was attempting to be tricky hoping to pick shares up lower than 25 cents (given market machinations from the start of August) however BGL appears to be one of those shares that is best left in the drawer as its proven that it doesnt really want to move from current levels and it can move hard to the upside at any minute (see major consolidation at 17 to 20 cent levels for well over 12 months before running very hard from May this year up to a high of 34 cents in a few short months) and you dont want to be caught with your pants down when it does.

I reread the Microequities (ME) report the other day and nearly fell off my chair. Unfortunately sometimes it takes a while for things to sink in for me (for instance this morning getting ready for work I spent close to 10 minutes looking for my wallet only to realise after turning my apartment upside down that it was in my back pocket...). Anyway what really excited me about the ME report was the indication that BGL management was working towards EBITDA margin expansion of close to 50% in three years. I am suprised this hasnt received greater commentary on the thread. This is an explosive mix coupled with top line growth.

On my model I get some pretty close numbers to ME in terms of earnings over the next few years. EPS of 3.4cps for FY12, EPS of 4.3 for FY13, and EPS of 5.5cps for FY14. Thing is that is based on 12.5% top line growth in FY13 and 10% in FY14. These top line figures are well below recent rates. They dont take into account possible further growth via acquisition which is a possibility along with the exciting prospect of higher organic growth rates as cloud computing really picks up steam (there appear to be significant opportunities for BGL as a redudancy network for data centre operators etc).

The great disparity between top and bottom line growth can be explained by the operational leverage available in this business, as management works EBITDA margin expansion. I guess its a case of believing that this is possible. I do. Firstly I think ME has been spot on with earnings estimates so far. For instance they lowered FY11 estimates earlier this year to 1.2 (from what at one stage was over 2 cps) which was on the money for actuals. I guess given their larger position on the register they have a better opportunity to discuss the business with management to obtain a sharper insight. Secondly you only have to look at how the business is run. When I was originally looking at taking a position in BGL a friend (also looking at taking a position) went and met with management to discuss this business. The story goes that he met with Jason and the crew and Jason asked if he liked the furninture and then indicated it was all second hand purchased from Grays online. No fancy corporate trimmings here just a lean machine, run by an experienced entrepreneur with a proper focus on how to build shareholder value.

The future looks pretty bright for BGL and I think as the watershed year of FY12 slowly plays out the market is going to "recognise" BGL further.