Boart Longyear (BLY) Analysis

Boart Longyear (BLY) has an Outperform stock recommendation and a maintained share price target of $2.50 from Australian share market analyst Macquarie Research Equities.
Boart Longyear, a drilling services provider, will announce its interim profit on 23 August. BLY should post a solid interim result, with market conditions remaining favourable, as evidenced by recent results and commentary from its key global competitors, including Major Drilling in Canada which has rallied 34% in the past month. Boart Longyear's revenues are driven by the amount of exploration expenditure. Exploration expenditure is in turn driven by three principle factors – the financial capacity of resource companies to fund exploration; the incentive of resource companies to spend money on exploration; and the ability of resource companies to spend allocated funds on exploration. In terms of financial capacity, the global resource market has arguably never been in better shape, with producers generating significant operating profits and free cashflow. Juniors (explorers) have raised significant sums of equity globally, which should be able to fund exploration programs for several years. Equity markets remain open. Ongoing high commodity prices continue to provide an incentive for resource companies to fund exploration programs. For producers, there is a requirement to add to existing reserves to grow long-term shareholder value. A number of major producers are planning significant capacity expansions. This will require extensive drilling to prove up reserves. For instance, Rio Tinto has committed to spend A$500m on drilling in the Pilbara as it looks to increase its iron ore production. The ability of resource companies to spend allocated funds for exploration is currently impacted by capacity constraints in the drilling market, particularly with regard to labour. Rig capacity is being added, but is constrained by the availability of labour, which indicates that demand for drilling services and products is going to remain stronger for longer. Market conditions remain highly favourable, with strong commodity prices and increasing exploration budgets. The analysts expect revenue growth to continue, whilst operating leverage should begin to be seen into FY08. Read a previous recommendation for Boart Longyear.

Boart Longyear Limited is listed on the Australian Stock Exchange (ASX) under stock code BLY. You can view their investor website here. BLY was listed on the ASX on 5 April, 2007. Boart Longyear is the world's leading integrated drilling services provider and products manufacturer for the minerals industry. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade BLY. Check your charts and good luck with your share trading!