Fear in the streets. Time to buy perhaps?

That’s about where I land too @Wini. The market reaction isn’t surprising given the Products revenue drop, but Services is holding up well, and management’s 2H25 guidance is pretty strong.

The cost blowout stings, but if it’s mostly investment rather than ongoing bloat, it could lay the groundwork for a stronger base...hopefully.

The EV/EBITDA at ~9 isn’t screaming cheap, but it’s also not demanding heroics -- just a return to steadier execution. Guess we’ll see if this really is just a hiccup or something more fundamental.

Perhaps, but it's hard to trust management guidance after several misses in recent times.

Hi Strawman, In your opinion do you think this is just a hiccup or something more fundamental?? Keen to hear your take on it?

It’s never great to see a company’s profit take a whack -- especially when the valuation was pricing in growth -- but knee-jerk reactions can often miss the bigger picture.

The key question for me is always: is this structural and company-specific, or cyclical and industry-wide?

LaserBond’s Products Division definitely took a hit this half, with OEM orders delayed or down. That’s not as visible in peers like Austin Engineering, who had a really strong half, (but even they flagged margin pressure due to the operational challenges of scaling up quickly for major OEM contracts).

I do think there’s some merit to the idea that growth investments weighed on profit. Management spent $1.78m in 1H25 on things like new senior hires, sales, BD, and training -- all expensed in the P&L. That might not sound like much in ASX100 terms, but it’s nearly 9% of revenue. If you strip that out, EBIT would’ve been around $3.5m or about 40% above the prior year.

Of course, it’s all about the return on that spend, and that’s still to be proven.

The bullish take is that this is a strong business hitting a soft patch due to temporary customer issues and front-loaded investment. If both play out as expected, the business is well placed to grow, and the stock may be cheap (trading around 10x FY23 EPS). Services is performing well and should help underpin things.

The bear case is that the Products Division’s weakness is more persistent and the investment doesn’t deliver much uplift.

At this point, I lean toward the former, but I don’t yet have the conviction to add. Hoping to line up another meeting with Wayne soon to get a clearer read.

@Escapetrader @Strawman I had a chance to catch up with Wayne Hooper (CEO) and Matt Twist (CFO) last Friday. They provided some good context to the extra investment, which not only cost dollars but also impacted their workshop efficiency, impacting margins.

The largest impact was bringing over 15 skilled migrants between June and October last year. It generally takes about 3-6 months to train up a skilled labourer to Laserbond's specific processes, generally meaning slower turnaround times and the extra costs associated with supervision. Management said they could have brought migrants over more steadily but opted to wear the short term pain of bringing them over all at once. No doubt it could have been handled better, skilled labour is clearly their biggest bottleneck to growth so you'd hope it could be better planned but as anyone who has run a business knows sometimes things don't go to plan even with detailed planning.

I think the optimism into the 2H25 comes from the fact with skilled migrants now fully trained up they are looking to roll out afternoon/night shifts across their four facilities which will form their Quick Response Teams, basically a catchy name to charge customers more for faster turnarounds.

LBL will need to spend some more time in the micro cap sin bin, but to possibly answer @Strawman's question; likely both, but I suspect the bigger impact is company specific and hopefully cleared up after a 1H25 result where management wore all of the investment pain.

Good intel @Wini, thanks for sharing!

I'm usually rather forgiving when management err..so long as it's not an obvious blunder that could have easily been avoided, or one that represents an existential (or even crippling) threat. Or a mistake that has been repeated.

Things always look more obvious in hindsight, and the implications for decisions can often be hard to discern in advance. Anyone who has ever run a business knows this intimately well.

That being said, there are plenty of things that ARE obviously stupid, or could have been easily avoided or mitigated. At the very least, they need to be admitted to. Those kinds of mistakes need to be met with swift and decisive action (ie sell!), something which I need to be better at.

Thanks for your thoughts!

Is this a mistake Laserbond management are repeating @Strawman ?

In FY17 LBL employed six workers under skilled visa applications, in FY20 they added a further 15 (which didn't arrive until FY22 for COVID reasons) and in FY24 they added another 15 to make a total of 40 skilled migrant workers recruited out of a total of 147 employees (I note that of these 40 there had only been 1 resignation due to family reasons by end FY24)

Now @Wini has said another 15 skilled migrant workers have been recruited during 1H25 with all of the associated indigestion this is bringing. Laserbond have been recruiting via this pathway for 9 years now and they still can't seem to get this process right. I'm willing to give them some rope largely because of the high retention rate of these employees but it's starting to feel like groundhog day.

(held)

Good point @Shapeshifter -- the favourable interpretation might be that demand just grew faster than expectations, or that they felt that domestic recruitment would pick up again. I'm sure it's quite a hassle to find suitably qualified people from overseas and then navigate the red-tape from the Dept. of Home Affairs.

But, to your point, given their experience perhaps managing a much bigger intake earlier could've helped mitigate this bottleneck, even though it would have crimped earnings in the interim.

It's hard to know from the outside, but it doesn't feel like an obvious mistake (certainly not a critical one), and of all the problems to have as a business, not being able to recruit fast enough due to growing demand would have to be one of the better ones to have!

I'm not sure that it's such a good problem to have @Strawman. If LBL's tech is so good, why can't they pay Australian people to do the work, why do they have to rely on importing people from overseas? The answer comes down to their explanation that the skill set required doesn't fit within any of the current trades that are widely recognised here, and is unique.

OK, but why can't you train Australian workers to do those jobs? One reason could be that the Australian workers don't hang around long enough, so the cost of training is way too high because you have to do it far too often, whereas the retention rate with these imported workers is much higher.

OK, why is that? To me, the most likely reason is they aren't paying enough money. The imported workers are obviously more grateful for the opportunity and are being loyal and sticking around; they may also not expect to be paid as much as their Australian counterparts.

This problem can simply be fixed by spending more money, either paying your workers more money so they don't leave so often, or by bringing over greater numbers of people from overseas and training them to get ahead of increasing demand.

I sold out of LBL some time ago because it became obvious to me that they struggled to scale, and scaling well is the only way that these sort of companies provide superior returns.

Look back through this thread: LBL - A proxy for commodity prices? ...and I commented 6 months ago in relation to XRF vs LBL:

• While XRF are the higher quality company today, by a decent margin, it could probably be argued that LBL have more mid-term and possibly longer-term upside potential - IF they can execute well enough and manage their own growth without stumbling too often.
• In terms of cycles, I think now is a good a time as any to buy both companies, all things being equal, but I don't think all things are equal, at this point, in terms of their respective management teams and their ability to succesfully scale smoothly - in those respects I would hold XRF but not LBL.

--- ends --- [those comments were in two different posts well down the thread].

I did hold LBL through to June last year by the way, but I've moved on now.

Seven months ago - in this thread: LBL - Thesis breaking ...I said:

• Is anyone else concerned about the labour issues that LBL were experiencing in FY2024 being a direct result of them not wanting to pay very much for workers, so using intakes of migrant workers and then training them up, causing delays?
• I would have thought that if they continue with that strategy it's going to cause some sort of bottleneck or point of delay in their ability to scale efficiently. I'm always concerned when the profitability and execution of a business of this nature gets back to something as basic as what they're prepared to pay their employees.
• I do understand about the disconnect between the ATO requiring them to recognise revenue from their 40% of Gateway for 4 months but their inability to include it in their statutory accounts due to not having a controlling interest in the company at this point (40% owners), however I think they have more issues than just that.
• I like the company and I like the tech they have, but I'm exiting them here on SM today because I feel I can get better bang for my buck elsewhere in the near-to-medium-term. LBL will be a company I'll have another look at in a year or two perhaps, but I didn't hold any IRL (since I sold in June) and won't hold any here either after today.

@Wini replied: Bear77, I don't think it is a case of LBL not wanting to pay up for skilled labour, but more an impact of LBL's core tech not being the direct outcome of a specific trade. The two which align the most are boilermakers and welders, but it can be a tough sell for LBL to hire one of those trades when they would need to be convinced to spend 6-12 months training to LBL's tech.

@topowl added: You know that’s a hell of an issue. Other than paying above average salary I’ve got no idea how someone would overcome that problem in Australia...unless the business was located in an area of higher unemployment…

It goes on; you can read it here.

Point being, at that point, the LBL share price had dropped from levels around 90 cps (cents per share) to 54.5 cps, and they were calling out issues with both management quality (it's all there in the thread) and with availability of skilled labour that was adversely impacting their ability to scale, and it seemed clear to at least some of us that those were two problems that were NOT good to have when the investment thesis depended on them successfully scaling the business, and as quickly as possible.

Now they are trading below 40 cps and the same problems are again being highlighted - they appear to have made little progress in terms of getting on top of the biggest issue that the company faces - and we are supposed to trust that this issue will just sort itself out?

My opinion now, as it was 7 months ago, and 6 months ago, when I contributed to those threads (links above), was that my investment thesis for Laserbond was broken, because they have good tech but seem incapable of scaling up to meet demand as demand grows, and if they can't meet demand, people will search for alternatives. And there are always alternatives. There are other companies that provide different tech that does similar stuff, and there's always the alternative that people do what they've always done, i.e. let stuff wear out and then replace it.

While Laserbond's tech is a win-win when it's applied to stuff to extend the working life of those machine parts, etc., it's not a win-win if LBL do not have the capacity to apply the tech to your machine parts, so you move on.

The ability to scale as required was a big part of the investment thesis for me, and they haven't scored well on that front, at all, so I'm out.

Remember that this is not a problem that they've just identified; they've been aware of it for years, so ask yourself, have they adequately addressed the issue and overcome this hurdle or have they let it significantly reduce the potential growth of the business?

They have two problems IMO. A lack of skilled workers, and poor management.

@Bear77 think you've hit the nail on the head with the hiring.

The foreign workers are cheaper and less likely to complain about the night shifts.

In getting them all over as a group it is also probably cheaper, they can do group introductory sessions, can do all the visa applications at once etc.

They could find the workers here if they wanted, and they could train them, but it'd cost more.

It's such a small business that hiring that many would have an impact and positively it would indicate growth assuming no workers left.

That's really well laid out @Bear77. Some good food for thought..

That such specialist knowledge/skill is required to operate laserbonds tech is a limitation I may have underappreciated. And, as you rightly point out, a barrier to effective scaling.

The degree to which these challenges have been effectively met by management is certainly open to debate, but I'm probably less scornful than you.

Still, as engineers, you'd hope they would have managed to troubleshoot this sooner

You've raised some fair points @Bear77 and no doubt the issues that Laserbond faces have been exacerbated in the share price due to the lofty valuation it traded on a few years ago. At the end of the day, Laserbond is a capital intensive business with customers exposed to cyclical factors. I think it's best to zoom out with businesses like this and look at the longer term history:

In my mind this is a business that has scaled reasonably well. But FY24 saw a slight decline in operating efficiency and 1H25 was downright ugly.

Should it reflect poorly on management? Possibly, I'm sure things could have been handled better but these things tend to happen with capital intensive, cyclically exposed businesses. Generally investment happens in waves as the business builds capacity and the workforce and then spends a few years growing utilisation and numbers improve.

While I don't know it very well I think PWH is a business going through a similar phase. It's the nature of these businesses that even with the best laid plans it is very difficult to manage a business through a large capex wave.

That's a helpful perspective thanks @Wini - however looking at that graph, their EBITDA margin has more than halved since June 30th, 2023, and their EBITDA looks to be back at around FY18 levels now, in dollar terms (based on the graph), so while I accept that it's not always possible to plan for every possible scenario and also that plans sometimes go pear-shaped, would you agree that this particular issue has gotten worse in the past year, not better, for LBL, despite their management being fully aware of the problem in H1 of FY24?

Because having people to actually run the equipment is so fundamentally vital to their business, would you agree they could have done more to address this issue over the past 18 months?

@Bear77 The last bar on the chart is only for 1H25, for the full year the company is guiding to come in slightly above FY22. But yes, three years of declining EBITDA, I completely agree it could have been handled better. But it comes back to the question @Strawmanasked at the start of this thread, is this a cyclical problem or a structural one?

LBL is very reliant on skilled labour as you point out, that can manifest in two ways. If they are struggling to acquire and retain skilled labour you would see a clear revenue impact because they simply wouldn't have the labour to execute on work. But the numbers suggest that isn't an issue, plus you can see a growing a headcount figure in annual reports. The second impact is on margins as newer employees aren't as efficient and may require supervision meaning you are paying two employees to do the work normally required of one.

In my opinion this is what we are currently seeing in the business. When the business is growing "normally" you don't see any material impacts as the steady cadence of new apprentices, local labourers or skilled migrants are absorbed in the operating numbers. But they have called out a larger than normal influx of new employees in FY24 and 1H25, primarily to build up the capabilities to start running afternoon/night shifts for the "Quick Response Teams" they have called out as a strategic objective.

I reckon it would be a great management meeting @Strawman? Management are arguing that 1H25 bore the full brunt of the impact to achieve these strategic objectives, it would be helpful to get more context on why they didn't stagger the investments across a few periods and what if any benefits they are currently seeing?

Thanks for those insights @Wini - I guess if you already hold LBL, you could give them more time to sort this out considering the points you make, however as a previous holder of the company, I've likely got confirmation bias that makes me see this recent half year result as evidence that I was correct to exit the company at a higher share price last year. Still, if I was completely unbiased (and that's clearly not the case), I imagine I'd not be jumping in here on the back of that result. I would prefer to see these issues resolve before getting onboard. Sure, that's likely to be at a higher price if the business has improved significantly, but the risks would also have reduced significantly, so there's that trade off. If they get their labour and cost issues sorted out, they are likely to still have a big growth runway ahead of them at that time, so my preference would be to consider them as in investment option at that point rather than now. But, again, it all comes back to conviction.

I reached out to Wayne in early January @Wini, but I never heard back. I'll give it another push now though. It'd be great to hear his take on all this.

Wayne from Laserbond is a go for May 27. Was hoping to secure something sooner, but glad to have something locked in the schedule.