MARKETS SPECTATOR: Boart bounce

Profit downgrades tend to come in threes, so there could be more to come for Boart shareholders, although this morning they should be counting their blessings.

In another classic act of ‘how to lose shareholder confidence', the mining services provider slashed its full-year EBITDA by approximately 16 per cent only three months after a 20 per cent earnings downgrade.
Yet, much to the relief of shareholders the stock has actually managed to post modest gains this morning, last up 2 per cent.



Source: The Bourse

Judging by recent price action on the chart above, it doesn't look look the market was anticipating further downgrades. The yellow circle marks the previous downgrade where the stock basically stepped off a cliff and finally bottomed out some five or so days after the downgrade.

Since then, as you can see the price has steadily ground its way higher and as of Friday's close was trading well above the lows hit in early September. If the market had been a leading indicator and was pricing in another downgrade, then the stock would have kept sliding lower.

Instead, it seems investors have chosen to look forward and focus on the fact that revenues were broadly in line with expectations and the decline in margins had been due to the headcount reductions, according to chairman and acting chief executive David McLemore.

The firm is aiming to cut overhead costs by 20 per cent or about $70 million. The chairman also noted that the demand for global drilling, which had been weakening, looks to have bottomed and that early 2013 contract negotiations indicate demand has stabilised and 2013 revenue run-rate should be around the second half of 2012 levels.