Strong Oil Demand Forecast and BOLT Technology

BOLT Technology - FY 2009 Results

Top line revenues down by 21% to $48.9 million for the fiscal year ended June 30, 2009. This is mainly due to the decrease in sales in two main reporting segments: seismic energy sources and seismic energy source controllers. More than $11 million decrease in sales reported in seismic energy sources segment. This is followed by air gun replacement systems segment (decreased by more than $2 million) and seismic energy source controllers segment (decreased by $0.6 million).

Only segment that witnessed growth in sales was underwater cables and connectors. Sales from this segment went up by $1.4 million, from FY’08.

However gross profit margin increased to 49% for the year, compared to 46% in 2008. This is due to the higher price level and decrease in material costs.

BOLT uses high quality steel in its manufacturing process, hence any drastic increase or decrease in prices of steel could adversely affect the profit margin of the company. Cost of sales was 51%, lowest in last five years. This somewhat helped the company to achieve the highest net profit margin of about 22% in 2009.

40% of revenues from just three major customers

Top three customers (Schlumberger (16%), Compagnie Generale (15%) and Petroleum Geo-services (9%)) constitute 40% of sales in 2009. This is a real concern for any investors, though the company was able to book orders from other clients as well.

Risk Factors

- Oil price movements affect the sales of BOLT directly; Increase in oil prices improve the marine seismic activities, which in turn increases the sales
- Global economic conditions affect the demand for oil and gas products. This in turn will have an impact on BOLT’s top line revenues
- Dependency on few major customers for major portion of revenues
- 85% of sales from outside US


Relation between Oil Price and BOLT’s Sales

There’s a correlation of more than 0.5 between the oil price and sales. This however clearly do support that BOLT’s sales don’t rely wholly on oil price movements.

International Energy Agency (IEA) recently increased its demand forecast for global oil demand in 2009 & 2010 to 84.4 mb/d and 85.7 mb/d respectively. This is strongly supported by increasing demand in North America and non-OECD Asian countries. Hence BOLT could report an increase in sales in 2010 as the projections for oil demand and price seems to be optimistic.

Strong Fundamentals

BOLT’s average return on equity (RoE) in last five years stands at a healthy 18.5% and return on assets (RoA) at 16.1% for the same period.

2005-009
RoE 18.5%
RoA 16.1%
EBIT margin 26.2%
Net profit margin 19.0%
Sales/Share ($) 4.8

Cash and cash equivalents increased by 34% Y-o-Y to $25.69 million in 2009. Moreover the company does not hold any long term liabilities.

BOLT spends an average 1% of sales on research and development activities. This helps the company to use latest technology based products to clients and also improve its manufacturing processes efficiently.

Valuation

P/E 10.17
P/B 1.60
P/S 2.18
P/CF 10.94
Market Cap ($ million) 106.60
EV ($ million) 78.87
EV/Sales 1.61
EV/EBITDA 4.84