Pinned straw:
Half Year Results - FY2024 - Laserbond
Laserbond... the first small cap company I dipped my toe into, and as such, I have a soft point for them. As I type away, the market did not like the results, with the SP dropping almost 14% to $0.75.
A few key financial updates:
- Revenue: Increased by 8.7% to $20.28 million from $18.65 million from the PCP.
- EBITDA: Decreased by 9.1% from the PCP.
- NPAT: Decreased by 15.6% from the PCP.
- Cash: Increased by 21.1% from the PCP.
For those of you (much like myself) who like pretty pictures...
Division updates:
- Services Division: Revenue of $11.19 million, representing a 15.4% increase over $9.69 million in 1H23. EBITDA decreased slightly due to growth costs, from $3.04 million to $2.98 million. The gross profit was consistent, with margins of 55.8% and 55.6% for 1H24 and 1H23, respectively.
- Products Division: Faced challenges due to an unexpected withdrawal from trading by a supplier of raw materials needed for manufacturing products for a large OEM customer. An alternative supplier was sourced, but the delay in manufacturing componentry and testing led to delays in order fulfillment and revenue recognition. Efforts to expedite the process included air freighting components from overseas.
- Technology Division: Generated revenue of $0.42 million, largely from a technology sale to Swinburne University in Victoria, with additional contributions from licensing fees and the sale of consumables to licensees in the United Kingdom and New Zealand. Other technology sales revenue has been dependent on customer timeframes. A revision to the operational scope in response to redefined customer requirements for the North American cell is progressing, with factory and field testing required before revenue recognition can occur. Revenue from the sale of the Curtin University and Indian cells is expected in late 3Q24.
My view:
The market has looked at the pretty picture on the front page outlining EBITDA down 9.1% and NPAT down 15.6% and decided to hit the sell button - this is an overreaction.
Yes, there were supply chain issues in the products division due to an "unexpected withdrawal from trading by a supplier of raw materials componentry needed to manufacture products for a large OEM customer". Admittedly, this isn't a great look, but these things happen... it's about how the company solves the issue, and Laserbond sourced an alternate supplier. They attempted to get the components air freighted from overseas but were unable to get them over in time to enable the shipment of most order before year-end.
I like Laserbond's move to sign an agreement to purchase an initial 40% of Gateway Group, with an option to move to 51% within three (3) years.
I also like Laserbond committing to their prior outlook with Wayne Hooper stating, “With the inclusion of Gateway Group’s revenue, LaserBond will achieve its FY25 $60 million revenue target". The strategic focus for the next period will be leveraging the strengths of Gateway, incorporating our surface engineering capabilities into Western Australia, and completing research into an acquisition for North America".
My thesis on Laserbond is unchanged at this stage - I think this is a blip for a company that has proven over the last few years that it's making the right steps in the right direction.
Disc: I hold at small size IRL and on Strawman... and I'm thinking about adding...
Thanks for posting the Straw @TomS, ripper job to provide an overview on headline numbers, especially considering Laserbond have been busy this morning with 5 announcements, 3 of which being price sensitive - so I am sure the forum is and will work through these. I reckon this one is going to generate some discussion.
I held a similar view regarding LBL and Wayne Hooper prior to today's announcement, but my patience has worn thin and unfortunately, run out.
The retrace in NPAT and subsequently EPS is a kicker in today's market; especially considering the association with LBL being a 'growth-based small cap at a reasonable price'.
The announcement of the Acquisition of Gateway Group, which @BoredSaint has just posted about here is a little odd and bizarre. Now I've been wanting LBL to expand out West for some time now (I'm a WA fella myself who works in the mining industry) given the lucrative WA market. It makes sense. However, what isn't so clear to me is what exactly LBL have paid for Gateway Group. Now I am no market analyst wizard myself but I am unable to understand exactly what they have coughed up for the acquisition. As a shareholder, I'd not only like to know this, but I'd like it to be made pretty clear too
In not clearly advising this to shareholders - I see that as strike one.
I swing and miss all the time, but there's a few other things that got my goat - (1), as noted above, the retrace in NPAT and EPS is not what we want to be seeing in today's market, yes revenue is growing, but that won't mean much to shareholders if your EPS is going in the other direction. (2), I am quite confident that supplier and procurement issues have been flagged in the past as an issue for the business - I get that this is the game they're playing in, but, 'once bitten twice shy for me.' (3) The dividend payout remaining consistent HoH is where I think the Board is simply trying to please shareholders here as oppose to keeping some of this as cash on hand to fund these future growth opportunities, especially considering two headline numbers have gone backwards. (4) The technology segment is minimal, lumpy, not growing, and no longer being pursued as a key driver of growth.
LBL was one of my lower conviction stocks, so with the above and this in mind, all this amounts to strikes two and three. So for now I am out (Sold), and happy to sit on the sidelines and watch.
@TomS I'm not sure it was an overeaction given the relatively weak numbers. In my opinion these results were below par relative to what they historically have delivered. Profit down expenses up is a hard sell, regardless of the reasons. EPS down 16%.
I am not a shareholder of LBL but have looked at it several times, but I am anchored to what I could have bought it for!
The two main questions I have is 1) around the technology services, it has become a little bit of overpromise and under deliver on these deals. The licence deals were meant to lead to high margin low capex revenue streams, but they seem continually be delayed. The commentary seems to be shifting expectations away from further offshore technology sales, in preference to internal demands. This section makes me think the future of the technology division might be more constrained.
"At present, LaserBond’s range of technologies available for licensing has covered a diversity of applications, which are often further developed to bespoke designs to meet specific customer requirements. In future, beyond the current period of high internal demand, we intend to offer a smaller range of standardised LaserBond cladding cells that can be produced cost- effectively with short lead times as other surface engineering services businesses seek to expand into the laser technology space"
The second question I have is around access to skilled labour it seems like they find it difficult to get enough skilled staff to run their operations at full capacity. 1/3 of the increased costs was on recruiting skilled workers. While on the surface the WA expansion looks like a good fit, I imagine the skilled worker problem will be exacerbated in WA. Veem have had a similar problem with this in the past and I would think the pool of workers would be the same.
The potential expansion into the US is similar to above could be a great decision but Aus companies expanding overseas hasn't always worked out so well. Does increase the execution risk a bit.
Not to say that they aren't a good company I'm just not very excited about the current result