Unfortunately I wasn't able to attend LBL's AGM on Thursday, but reading new CEO Rob Freeman's address I was impressed by the clarity of the strategy he was outlining. He spoke about the company's strengths, the challenges they need to overcome and the constant drive to solve customer problems.

Pleasingly the first four months of FY26 continue the turnaround seen in 2H25. Through to October, LBL reported revenues of $15.9m and PBT of $2.5m. LBL was also able to disclose the name of the OEM customer they signed a $2.3m Technology licensing deal with in September as Komatsu, and said they expect this first deal will be the "first of multiple" with two additional OEM's in "advanced stages of negotiation". After some trial and error it appears as if LBL has finally got their Technology segment go-to market correct.

I want to ask what might seem like a dumb question about Laserbond, but I’ve been wondering about it for a while. If you take parts out and apply a coating, doesn’t it void any warranty of the entire piece of machinery?

My initial thoughts on Laserbond's latest results are quite positive, although the market seems unmoved. I guess much of it was expected.

At first glance the headline figures show only modest revenue growth and a small dip in operating profit, but this was a story of two halves (as the company was at pains to point out). The first half was weighed down by OEM demand issues and higher operating costs from strategic investment, but in the second half those investments seemed to start paying off --productivity improved, and OEM ordering patterns normalised. As a result profitability rebounded strongly.

On a full year basis revenue was up 3.6% to $43.5m while EBITDA slipped 4.7% to $9.0m and NPAT rose 10.4% to $3.8m (lower pre-tax profit plus a one-off downward adjustment to prior year provisions and other deductible items brought the tax bill down a fair bit).

But looking at the second half alone, we saw revenue up 7% from the pcp, and npat up 55% -- back to the record levels seen in FY23. If you annualise the second half (just by way of comparison) you get a PE of about 12x, compared to 17x if you just take the FY numbers as stated..

So while the shares dont look especially cheap on trailing numbers, the valuation is more reasonable if the second half performance proves sustainable. The services division continues to grow strongly, the products division bounced back in the second half and the technology division delivered its first modular laser cladding cell at Gateway. These are all encouraging signs that the strategic investments are bearing fruit.

My position on LaserBond remains the same. It is a solid business that has had its share of short term challenges and setbacks, but the core earnings power and long term prospects are intact. It may not be a flashy business, but it is resilient, and in 10 years it is likely to be larger and earning more than it does today. A normalised view of earnings provides comfort on valuation, especially given the strong second-half rebound. The company has no traditional bank debt, holds a healthy cash buffer, remains cash generative, and continues to support a tidy fully franked dividend.

What do others think? I'm probably being too positive.

$LBL announce they are putting US expansion plans on hold given the current uncertainty.

(I think this explains Trumps overnight response. Joking, not joking. Maybe it’s dawning on him that uncertainty will get in the way of him Making America Great Again if CEOs, not countries, won’t invest!)

Ugly. Still digesting completely but while the headline reads investment year, it isn't the extra costs that hurt too much, it's been the collapse of Products revenues. Here is the timeline from 1H24 when weakness first showed up:

Supply issue, but sorted in November so big backlog to eat into 2H24:

Supply issue sorted but then OEM customer upgraded their ERP software which messed up ordering patters. Sorted in June though so 1H25 will see recovery:

"Actually we have NFI why the OEM customer isn't ordering"

More work to be done, but when the last 18 months are outlined like this it doesn't paint a rosy picture!

A question for those more knowledgeable than I:

Is LBL a proxy for commodity prices?

Are we likely to see an upward movement is SP when commodities rebound?

Insider purchases from two directors. Not big amounts ($22k in all), but good to see, and hope it continues!

It’s not a huge purchase but there is generally only one reason for directors to buy shares in a business. On the 26th and 27th February 2024, Non-executive Director Ian Neal bought 25,000 Laserbond shares at $0.75 per share, total value $18,750. Ian is paid a total of $60,000 per year for his role on the board.

Laserbond has updated the market with further details about the gateway purchase -

2A1507123_LBL.pdf

Gateway Group

The reason details were lacking in today’s announcements regarding the purchase of Gateway are now apparent. Laserbond have just released an ASX update.

It looks like a great fit for Laserbond providing a base to further expand the business in WA through increased efficiencies and possible synergies with the hard- chrome plating part of the Gateway’s business. Gateway has some large mining services clients that should help to boost Laserbond’s revenues. While it will add to the capex and dilute shareholdings initially, this looks like a good long-term investment for Laserbond. I like the deal!

About Gateway

Established in 2010 to offer a more affordable and customised approach than original equipment manufacturers, Gateway has quickly established itself as a reliable machinery parts supplier.

Our purpose built workshop in Perth (Western Australia) allows us to provide flexibility in our services and allows our customers an involved and specific approach to their machine and maintenance requirements.

Services

Held IRL

ASX Announcement

Just as I was shutting down for the weekend, this came through.

Consideration is 4.5 x Gateways's FY23 EBITDA of $5.6m

So, 40% = $10.0 m

Paid as:

a) $4,894,433 cash

b) $5,974,729 in LBL shares based on a VWAP of $0.85444 per share.

$LBL has the right to acquire up to 51% in total.

Further shares to 100% at Gateway's shareholder's discretion.

Consideration for additional shares up to 4.5 x EBITDA up to a max. of 3 years average EBITDA. Method of cash and / or scrip to be decided at the time.

I'll not repeat any of the results and commentary today on $LBL, as I think everything is well-captured.

While also irritated at the clarity of the deal communication, we are learning time and again, that our small cap management team's and Boards simply need to develop their investor communication capabilities. While it is something to bear in mind from a governance and risk perspective, if I trust in the integrity of management, I'll cut them some slack.

I was also not unduly disappointed with the operating performance. Gross profit and %GM continue to progress.

The expense increase lacks explanation: $5.04 to $6.60m! But perhaps they felt it goes without saying given the things they are doing as part of the strategy. It is one to watch, and if expenses continue to expand in an outsized fashion, then that will be a flag for me. A more sophisticated management team would have provided more detail here.

The continued slow progress on the technology division is disappointing. However, this is a relatively new area for them, and I'd rather they continue to innovate subject to exercising capital discipline. The commentary indicates that they are managing this and adapting as they go. It will take time to get the business model and the execution around it right. It remains core to the thesis.

I am glad they are expanding the business to WA and I'm not too fussed about the $60m target, or how they get there.

So, while today had more bad news than good, that's the time to buy if the thesis is intact. For me the thesis is intact, so I increased my small RL holding by 25% at $0.75, and will put a corresponding SM order in now.

Disc: Held in RL (2%) and SM

Laserbond announced that has made an acquisition of Gateway Group in order to expand their business into WA.

The details of the acquisition are not very clear...

• LBL will acquire an initial 40% equity interest in Gateway Group which will reach a minimum of 51% in 3 years from settlement date
• This will be paid in part cash and part scrip
• LBL is valuing Gateway at 4.5x EBITDA although this is the "enterprise value"
• Gateway had EBITDA of $5.6m
• The cash component will be funded from current cash reserves and will leave the business with $4.8m remaining
• LBL had cash reserves of $10.2m as at 31 Dec 2023

So based on what they've provided, the cash component of the transaction will be around $5.4m with the remaining in scrip. I'm hoping management give some further clarification as to the exact details of the transaction given that this is their way of achieving their guidance of achieving $60m in revenue by FY25.

Full announcement here.

Disc: Held IRL and on Strawman.

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...