BOLT Technology: An Undervalued Stock?

Currently Bolt's (BOLT) market price is at $9.75 (increased by almost 60% from Dec’08).

• Low PE-G ratio 0.20 and PE multiple 4.03
• Strong fundamentals with good profit growth
• Market capitalization - $67.36 million (as of Dec 12) with no debts

Strong Fundamentals - Company’s growth

BOLT’s sales were up by almost 110% to $61.6 million in 2008 from the year 2006. Net income was $14.5 million in 2008, an increase of more than 200% for the same period.

The company has no debts, which shields BOLT from the global credit crunch. Moreover the cash & cash equivalents for the most recent quarter ended increased to $20.3 million and working capital increased to $41.5 million for the quarter ended Sept. 30, 2008.

However the company reported a sales decrease of 21% in its sales for the most recent quarter ended Sept. 30, 2008. This is due to decrease in sales of new air guns. The sales was dropped by 51% in this category for the period, mainly due to the uneven sales pattern for new air gun sales, which is expected to rebound in next quarters.

BOLT is optimistic about its fiscal year 2009 sales, though it believes that the recent economic crisis and fall oil prices could affect the top line sales. Oil exploration by the companies may be affected due to the global economy slow down and decrease in oil demand by developed countries.

Profitability

A good Return on Equity at 26.2% for fiscal year 2008 shows the company’s good profitability. Net profit margin was 23.6% for the year 2008, a consecutive third year growth.

Valuation

The company is undervalued with a P-E multiple of 4.62 (for the market price of $7.85 on Dec 12), compared to the S&P’s 12.5. The P-B value is at 1.21 (whereas the S&P’s is at 2.8).

BOLT’s share was trading a little above the book value $6.47. The P-S ratio is at 1.09 (slightly above 1).

PE-G ratio is valued at 0.23 (much below 1), also clearly indicate that this stock is undervalued (assuming the earnings growth of 20.5%, average of last 3 years net earnings growth).

Factors for future growth

• Global oil prices are expected to be back to the range of $50 per barrel in 2009[1].
• According to World Geophysical News, the number of seismic crews in each region ranges between 11 and 68 (higher than the previous year). At least 18 new vessels are expected to be on stream during the period Q3 2007 - 2009[2].
• As most of the developed economies are already declared to be in recession, the demand for oil from the US, UK and Japan are expected to come down in 2009-10. This could affect the sales for BOLT from these countries. However the crude oil demand from developing economies such as India and China are predicted to be robust. (BOLT’s sales from China and India were $4.3 million and $0.4 million respectively; almost 7% and 1% of total sales during the year 2008). Hence oil exploration companies may book more orders from these countries in 2009/10.
• Moreover, OPEC is already declared a production cut of 1.5 million barrels per day as a part of measure to help the oil prices to rebound. OPEC is expected to announce more production cuts in its December 17 meeting. This may help the oil prices to bounce back at least in 2009. BOLT’s sales will improve once the oil prices are back at a decent level.
• Countries like India and China are still expected to grow at 7-8% GDP in 2009. Global economy is also expected to stabilize in 2009/10, boosting more demand for crude oil.

Customers

A more than 50% of sales come from five major customers for BOLT. Two new customers have been added in 2008. All the major customers (such as Schlumberger Limited) are into the oil services industry. Hence once the oil prices bounce back, the top line revenues for BOLT is expected to improve drastically.

Profile

Bolt Technology is the leading energy source supplier to the marine seismic industry. The Company recently acquired A-G Geophysical Products (in 1999) and Real Time Systems (in 2007).

A-G Geophysical Products is the leading supplier of underwater cables, connectors, hydrophones and depth and pressure transducers to the marine seismic industry. Real-Time Systems develops, manufactures and sells controllers and synchronizers for air guns. The Company’s products are mostly used in offshore marine seismic surveys. BOLT started its operations in 1960.

Disclosure: No Positions

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[1] www.news.com.au/heraldsun/story/0,21985,...

[2] www.energycurrent.com/index.php?id=2&amp...

Comments

[A Barrel Full:]

.........As most of the developed economies are already declared to be in recession, the demand for oil from the US, UK and Japan are expected to come down in 2009-10. This could affect the sales for BOLT from these countries. However the crude oil demand from developing economies such as India and China are predicted to be robust. (BOLT’s sales from China and India were $4.3 million and $0.4 million respectively; almost 7% and 1% of total sales during the year 2008). Hence oil exploration companies may book more orders from these countries in 2009/10..........

Sure oil is global. The key is not where it is being used, but at what price it is being sold. Demand for oil will drive prices and production. Even a acompany such as Bolt with negligible activity in growth markets would benefit from an upturn.

Jul 14 07:49 AM

[inSearchOfV...:]

In 2004 this company had a revenue of around 15 million in a period of about 5 years its ttm revenue stands at 52.7 million. It has more than tripled it revenue in that time frame. You have pointed out that countries like India and China might help boost that growth. Currently, for the fundamentals it has it is undervalued. So even if this company were to grow its revenue and eventually its bottomline at about 15% for the next 3 to 4 years. I think at today's prices this company is still undervalued selling at a multuple of seven times earnings. In the last four years this company has had a ROE in excess of 15%. Coupled with no debt, it looks like a winner.

Jul 14 08:42 AM

[Alphameister:]

"most recent quarter ended Sept. 30, 2008"? I'm much impressed with the thoroughness of your research!

Jul 14 10:18 AM

[oilsands:]

Thanks for the research, although it looks like you could have either updated the numbers or noted why they are from 3Q 2008.
I have watched bolt for a long time and am puzzled at its bargain status. Given current conditions, such profitability, growth, sound finances and niche security should certainly be attractive. Apparently it is just too small for the fund managers to notice. Or perhaps they are still short sighted about China and India.

Jul 14 10:48 AM