Boart: No darling, but no ugly duckling either

At the company’s annual general meeting tomorrow, Boart Longyear (ASX: BLY) shareholders will be hoping Jay Clement can help turnaround the fortunes of the ailing mineral drilling services and products supplier, which has been severely punished in the market recently.

Mr Clement, who has been with Boart for seven years, has extensive finance and treasury experience, including in commercial banking. He takes over today from Joseph Ragan, who is taking up an appointment with a US-listed company.

He’ll have a big job ahead of him, but if the reaction against the mining services sector has been overdone, the treatment of Boart has been that much more. It was down on Friday to a four-year low of $0.73, a long way from its recent high of $2.38 on February 13, and even much further from its year-high of $3.48 a year ago. Its year-on-year price performance is down to around -80%, about the weakest return in the period of any ASX 200 stock.

Believe it or not, it used to be a real market darling. But it’s certainly not quite the ugly duckling it’s being made out to be.

Boart Longyear is exposed to the commodities cycle downturn more than its peers – Monadelphous Group (ASX: MND) and UGL (ASX: UGL) – because it’s more involved in exploration services. Companies are likely to scale back on exploration first and when, or if, things pick up, those providing production mining services would benefit first.

But even with last week’s plunge, there is still plenty of scope for a appreciable turnaround in the coming weeks and months. Surely every bit of bad news must be figured into the current price.

Late last month Credit Suisse took 30% off its estimation of Boart’s earnings, but was still recommending the stock to its clients after a hefty sell-off. It was struggling in the high $0.90s at that point, and Credit Suisse had dropped its target price from $2.10 to $1.50.

At the same time Macquarie was maintaining its $2.1012-month price target. Despite the punishment doled out by the market last week Morningstar has just re-rated Boart from “hold” to “accumulate”.

Boart operates in more than 40 countries, and provides mining products to customers in over 100 countries in the Asia Pacific, North and South America, Europe and Africa.  But it may try ensuring its longer-term success by diversifying away from minerals exploration and into other growth areas such as environmental and infrastructure drilling.

Foolish takeaway

OK, so Boart Longyear is highly leveraged to a very fickle commodities cycle and its immediate prospects don’t look that flash. But even if you don’t view it as a long-term growth stock, there is good reason to believe its price has to be very close to bottoming and can only go up from where it is. It shouldn’t be the least bit surprising to see it knocking up around the dollar mark again in the near future.

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The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor  Andrew Ballard owns shares in Boart Longyear.

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