Resource Services Sector Update

Submitted by Jim Thesiger on 22 May, 2008 - 15:57

Resource Services Sector Update provided by Australian stockmarket analyst Macquarie Research Equities.

Resource Services Sector – M&A Activity

The resource services sector has featured quite prominently in Macquarie Research Equities (MRE) top picks recently and with Macmahon (MAH) making a takeover offer for Ausdrill (ASL), this represents a further consolidation in the industry and may unearth possible value. There is a chance that a counter offer may come from Boart Longyear Limited (BLY), one of MREs top picks in the resource services space. In todays note, (MRE) investigates the implications of the current deal to BLY and reviews the possibility of a counter offer.

The current offer by MAH is scrip based and values ASL at $446m or $2.59/share based on MAH’s 20 May closing price and on a PER basis it is valued at 12x. Ausdrill competes with BLY in the Western Australian drilling services market and is also a customer of BLY’s Drilling Products division with estimated market share for ASL of 4% and 17% for BLY in the WA drilling services market. ASL looks to be a good fit for MAH due to ASLs emphasis on full mining services and for this reason might not be an acquisition that BLY will seek considering their focus on specialised drilling services.

MRE has maintained their outperform recommendation for BLY with a 12 month price target of $2.47 and as per AGM comments, BLY has had a strong start to the year with expected revenue growth of 15%. Consolidation in the sector looks to continue and could be a catalyst for further growth in BLY.