Boom Logistics released a market update yesterday to give some insight in what to expect when the FY14 results are released next month. The company will post a big loss, but mainly because all goodwill has been written down to zero. What is more interesting is what we can learn about the companies asset value from the latest developments and impairment charges. Boom Logistics recognized an A$4.5 million impairment on assets held for sale. With $15 million in assets held for sale after this write-down this implies a 23% discount.
A 23% discount is great at current prices, but the asset value is likely even higher because Boom Logistics has a history of writing down assets for sale and consequently booking profits on sale. The second half of 2014 wasn’t an exception:
Also note that part of my initial thesis here is confirmed, namely that the company would be able to sell its equipment internationally. A crane that can be used world wide will maintain Its value even when business sucks in Australia. A small impairment of fixed assets in Western Austrailia also confirms that the equipment value is still there:
What’s also positive is that net debt has been reduced from A$102.0 to A$89.5 million the past six months. It’s not only good news though. The company spent $16 million in 2014 on new equipment which seems a bit excessive given the amount of idle equipment they presumably already have, and the fact that there have been no share repurchases is also a negative. Doubt if that’s an optimal allocation of capital…
Author is long Boom Logistics