13-Sep-2021:  CCZ Equities Research report:  LaserBond (LBL):  Laser focused on global growth opportunities

Analyst:  Thomas Chapman, email: [email protected], Ph: 61 2 9238 8222

Company Overview

LaserBond (LBL) is an Australian heavy industrial surface engineering company that specialises in the advanced cladding of worn machine components using their proprietary laser technology. Founded in 1992, LBL’s technological leadership hasfostered engrained relationships with global blue-chip clients and is now well poised for accelerated US & European market growth.

Proprietary technology pivotal to LBL’s sustainable growth

LBL’s technology has been proven over 30 years to restore worn component surfaces to last 5-10x longer at <2x the cost of new parts. Key catalysts ahead are (1) accelerating the licensing of this technology to global OEMs, and (2) increasing sales of LBL branded high wear-resistant products, e.g. steel mill rolls. We are forecasting +14.6% sales and +34.8% EPS CAGR over the next 4 years.

Strong ROFE accretion ahead, and turbo-charged with an acquisition

With a new VIC cladding cell just installed and 2-3 tech sales expected for FY22, LBL looks fully invested and poised for strong top-line growth which we expect to drive ROFE accretion from 14.9% FY21 to 29.7% FY25. LBL is also seeking an acquisition (2H-FY22+ guidance), and if history is a guide, its balance sheet could fund +17.5% FY21 pro-forma EPS accretion via a <2x EBITDA transaction.

Key markets are increasingly ripe for disruption

Rising cost and ESG concerns are driving heavy industries to adopt sustainable solutions to their machinery wear & tear problem (~3.5%+ of GDP and ~3.0% of energy consumption globally). While LBL is in a microcosm here due to size, sector focus and geographic reach, a generational opportunity is emerging for LBL to outperform the +6.5% 5yr laser cladding global sector CAGR.

Valuation summary

We have valued LBL using a mix of DCF and peer EV/EBITDA methods. Our analysis suggests an interim fair valuation of $1.10-$1.20 per share. Given our baseline forecasts do not factor in any acquisitions, there is clear valuation upside risk should LBL deliver on an accretive 2H-FY22 acquisition.

Company Details

• Stock Code: LBL
• Last Close: 79.0cps (84 cps on 17-Sep-2021)
• Market Cap: $75.9m (now $81.6m on 17-Sep-2021)
• Enterprise Value: $75.2m
• Shares on Issue: 96.1m
• Sector: Capital Goods
• Index: None

Top 5 Shareholders

1. Wayne Hooper 11.52%
2. Diane Hooper 10.17%
3. Rex Hooper 7.17%
4. Lillian Hooper 5.79%
5. Lornat Pty Ltd. 5.15%

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Disclosure:  I do not hold LBL shares, but I do like the company and I'm happy that they have paid off big time for @Wini and others who jumped onboard early on.

Other companies that the ASX sent out free broker reports on today included Cogstate, Silex Systems, Calix, Predictive Discovery, Playside Studios and Toys"R"Us, and @laoshi has posted links to all of those reports here.

24-Feb-2021:  CCZ Equities Research: Laserbond (LBL): Stronger second half expected, Products division performing well

Analyst:  Daniel Ireland, [email protected], +61 2 9238 8239

Stronger second half expected, Products division performing well

• Recommendation: BUY
• Target Price: 83cps (previous 108cps)
• Market Capitalization: $54m
• Index: None
• Share Price: 56cps (26-Feb-2021:  59.5cps)
• Sector: Industrials
• First half update: LBL declared 1H21 revenue and EBITDA of $11.8 M and $3.1M respectively (vs $11.3M and $2.7M pcp up +4.8% and +13.4%). The result was lower than expectations, largely due to COVID-19 restrictions causing delays in interstate transportation of parts to LBL’s facilities in NSW, SA and Victoria. Most notably, LBL’s softer services revenue that experienced delayed sales from new customers and reduced maintenance servicing for large mining and manufacturing businesses. However, the company is expecting a stronger second-half contribution from the services division (46% of group revenues 1H21) with the company declaring a ‘record volume of open quotes for active opportunities that currently exceeds $10M, with much of this work expected to proceed’.
• Services softer, Product sales strong: LBL displayed strong product sales during the first half ($6.3M up from $4.36M, +45% vs pcp), due to a product reconfiguration from a material OEM customer, combined with strong general demand. Management also highlighted several new products will add to the current sales momentum, including NanoClad© and EClad© which are close to commercialisation and promise to disrupt significant addressable markets. With lockdowns interrupting business conditions in 1H21, United Surfacing Technologies (UST), which was acquired in June 20, is expected to rebound in the second half, regaining the lost momentum caused by lockdowns in Victoria.
• Technology Division: LBL have ‘two promising local opportunities and one international opportunity under negotiation’, and we expect more opportunities will open as border restrictions ease. This will enable LBL’s sales force to meet customers face to face, further increasing tech sales and licensing revenues. The company noted that a technology sale in the US was imminent, subject to final testing, however we have not included these in our numbers given the uncertainty in timing (tech sales have traditionally added between $1.2M-$1.7M revenue for a core laser cladding cell, $200K in licensing revenue and $1M in consumables pa).
• Valuation: We reduced our valuation to $0.83 per share (previously $1.08) taking into account a weaker services contribution. We have reduced our estimates for FY21 Revenue to $27M and NPAT to $3.3M (CCZ prior forecast Rev $32.3M and NPAT $4.2M) excluding technology sales in the second half in our assumptions. We have also reduced the company’s Fy22 $40M revenue target and only included organic revenue growth as it remains unclear as to the timing of an acquisition which is required to reach the company’s stated target.

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11-Nov-2020:  CCZ Equities Research: Laserbond Limited (LBL): Australian industrial company going global

Analyst:  Daniel Ireland, [email protected], +61 2 9238 8239

• Initiating Coverage - Laserbond (LBL): LBL’s products and services reduce the maintenance costs for critical machinery, with maintenance largely determined by corrosion and abrasion as key determinants in the useful life of machinery parts. The process known as laser cladding, enables parts and machinery to be protected from harsh conditions thus improving wear life. These services/products maintain mission critical parts used in manufacturing and minerals extraction, with life improvements ranging between 2x-20x a standard part. The cost to buy and maintain such machinery is a considerable cost, whilst downtime experienced during replacement compounds this expense. LBL’s laser cladded products and services protect machinery from this wear.
• Significant Industry Potential: Abrasion wear is estimated to cost up to 4% of GDP, with estimates of circa $30B pa across Australian industry alone. Industry research have found that even a modest improvement in wear life of critical components is crucial to improve the efficiency of capital-intensive industries. The applications for LBL’s technology are far reaching, across multiple industries and applications, with many avenues yet to be explored. LBL’s products have proven to significantly increase wear life, offering a cost-effective alternative to discarding parts once worn.
• High Barriers to Entry and Strong Growth: LBL’s heat diffusion process reduces the temperature required when laser cladding, resulting in a harder and longer lasting surface finish compared to traditional cladding methods. The company’s IP, a ‘methodology around surface application’ has been built over two decades of experience. Combination of expanding sales in the US and imminent R&D technology commercialisation could see LBL increase sales 2x within 5-7 years.
• Significant profit growth forecast in Fy21: Strong organic revenue for Services and Products (CCZ forecasts 11% & 20% vs ˜10% & 20% from LBL) in Fy21, combined with the 12-month integration of United Surface Technologies will accelerate revenue growth (CCZ forecast $32.3M Fy21, up 45% on Fy20). CCZ estimates the company will execute 1 Technology sale per annum (vs ˜LBL 1 in Fy21 & 2 thereafter), aided by the recurring support and services.

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18 September 2019:  Taylor Collison Limited (TC):  "Laserbond (LBL.ASX)  Recommendation Outperform - Initiating coverage: the clever Australian"

Best bits:

"Our view – initiate with outperform 

TC initiates coverage of Laserbond with Outperform and a DCF price target of 84 cents.

• Laserbond is a specialised engineering business that provides laser cladding and other advanced services to repair and strengthen wearing surfaces of new and used large (and small) scale capital equipment.
• We like the fact the Hooper family patiently bootstrapped Laserbond out of a small shed in Western Sydney and have plenty of “hurt money” in the business.
• Laserbond has forecast sales to increase from $22.7m in FY19 to $40m in FY22.
• Laserbond has a strong competitive advantage by virtue of its solid reputation, in house expertise, location, in situ equipment, ability to price for value delivered and the ability to tailor a solution.
• The services division’s capacity utilisation can be improved by adding more shifts and people. Previous investment has set the business up to deal with increased demand. Capex should reduce, after material investment in FY19.
• The business can also grow the technology division via further sales of IP offshore (reference sites established).
• The products division can grow by expanding the market of products it has developed (such as hardened steel mill rolls) via recent major customer wins (Dec 18).
• Risks include a decline in the mining (China) and/or heavy industry capex cycle, dependence of key clients, emerging competing technology and greater organised activity from other competitors.

Valuation and recommendation 
 
Laserbond offers good value at current levels with a P/E of 18.2X FY20 and 13.4X FY21 driven strong eps growth profile. This growth is supported by a solid established competitive advantage, lowly geared balance sheet, a humble business culture and a good corporate governance. It is a quality business.

Macro conditions remains relatively favourable with many major commodity prices at solid levels, firm infrastructure spend and plethora of sunk heavy machinery investment that needs repair and /or improvement post the mining investment boom."

05-Mar-2020:  Taylor Collison:  Laserbond (LBL):  1H20 Result Review – A Tale of Two Divisions

TC's recommendation for LBL is "Outperform", with a DCF price target of 76c.  LBL closed yesterday (06-Mar-20) at 45.5c ($0.455).