BTJ mentioned as IIonline "Stock of the Day" 11/2/98:
iionline.com
Bolt Technology: Energized Growth (11/2)
Individual Investor Online Analysis
Analyst: Will Frankenhoff (11/2/98)
Ever hear of air guns?
No, not the ones used in the popular paint-pellet
games. We're talking about the air guns used for
undersea seismic exploration.
Major seismic exploration service companies such as
Veritas (NYSE: VTS) and Schlumberger (NYSE:
SLB) use them. And where do they get the guns
from? Of about 130 survey ships currently in
operation, 80% use air guns supplied by Bolt
Technology (AMEX: BTJ), a little-known company
based in Norwalk, Conn.
Bang! You're Seen
These guns fire compressed air to create sound
waves which bounce off the sea floor and allow
geo-scientists to model and visualize the sub-surface,
making identification of significant oil and gas
deposits much easier. This is important to exploration
& production companies due to the significant
expenses associated with drilling oil and gas wells.
The guns typically cost between $3,000 and
$76,000 with an average selling price of around
$10,000. It's potentially a pretty good business,
given that each ship generally employs 60-plus guns
plus replacements.
Rising Demand
And the increasing demand for offshore seismic
services has propelled Bolt's growth. In the most
recent quarter, ended September 30, 1998, revenue
increased 102%, to $5.3 million while earnings of
$0.29 per diluted share represented a 142% increase
over the prior year's quarter (after backing out a tax
credit). About half this revenue came from
replacement parts.
It's a very profitable business too. Although gross
margins softened slightly, they still came to 48%. And
operating margins rose 600 basis points to 29%.
For all of fiscal 1999, which ends in June,
management is comfortable with projecting 50%
revenue growth. Why? Despite oil's very low price,
exploration companies are slated to bring 10 new
ships to the market in 1999 and if Bolt captures its
historical market share this will add between $6.4
and $8 million to revenue.
What's more, additional ships are being deployed for
other purposes. For example, Japan is launching two
boats that use air guns for underwater earthquake
testing. Altogether, management believes that it will
supply guns to between 10 and 12 new ships in the
coming year
Additionally, management has indicated that it
expects revenue from its Custom Products division, a
maker of industrial clutches (acquired in January,
1998), to contribute $3 to $4 million of Bolt's
estimated $27 million in revenues for fiscal 1999.
It's Cheap and There's Insider Buying
At a recent price of $7.00, Bolt is trading at 7
times trailing earnings of $1 per share.
Meanwhile, in late August three insiders stepped
up and bought 17,000 shares between $6 and $7
per share. The stock traded as high as $10.75 earlier
this year.
Be careful, though. The stock is relatively illiquid (4.7
million float). In addition, any stacking of ships
among the seismic companies could adversely affect
Bolt's bottom line.
Bottom Line:
Given its very low multiple to trailing earnings and its
recent explosive revenue growth, there seems to be
very little downside to the stock. |
