22/2/21 Dec 20 Appendix 4D & Financial Report

A mixed result from LBL with revenue increasing 5% and NPAT increasing 3% however some big moving parts between segments. The core Services division revenues fell 21%, but also benefited from four months of the United Surface Technologies acquisition meaning organic revenue fell even further. Management did not break out the acquisition contribution which was disappointing. Operations were hit hard by Covid, with many customers deferring maintenance and interstate border closures meaning some customers unable to freight equipment for servicing. PBT margins fell from 18.2% to 16.7% which was a decent result given the revenue fall.

The Products division was the shining light with revenues increasing 45%. A lot of this was recognising revenue from orders that slipped out of the prior period, but nonetheless it was a great result for the segment. PBT margins grew from 17% to 19.7%.

The Technology division recorded minimal revenue in this half, but commentary here was the clearest from management it has ever been of the immediate opportunities with terms agreed with a US customer pending final testing and management confident enough of closing new E-Clad technology licensing sales to order important components with long lead times ahead of agreed terms.

Some one-off items that should be considered are $840k of Other Income (I suspect largely JobKeeper) and management's decision to pay $192k bonuses to employees for their work over the Covid period.

The business continues to be a solid cash generator with $1.73m of operating cash, with $423k capex.

Management provided commentary on their medium/long term strategy and it was confusing with the $40m FY22 revenue goal maintained but the strategy tweaked for growth out to FY25. My read is that further acquisitions are now required to hit the $40m revenue target with targets identified in WA and QLD.

Other commentary supporting growth was open quotes of $10m with confidence most would proceed, and the recovery of the US steel industry which has struggled to keep up with demand during Covid.

Overall it seems as though the business is well-positioned to recover with the economy post-Covid, but this is the first report I have been disappointed with communication from management in the years I have held LBL. The failure to disclose the UST acquisition, break out Other Income properly and not give a detailed breakdown at the AGM update of the large split in revenue between Services and Products (they were just bundled together as 11% growth Jul-Oct) is unacceptable and I will provide this feedback when I get a chance.

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

Analyst:  Daniel Ireland, direland@ccz.com.au, +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.

--- click on the link at the top for the full CCZ report on LBL ---

17/11/20 2020 AGM CEO's Presentation

Decent update from LBL at the AGM last week. Revenue for FY21YTD is up 10% despite on-going challenges from travel restrictions for engaging new customers (particularly in the US for steel mill rolls). Management once again stuck to their $40m FY22 revenue target.

What interested me most was the company yet again remaining very tight lipped before revealing a new product as a result of R&D. Both Micro-Clad and Nano-Clad were announced as new products on top of E-Clad (trying to replace hard chrome plating) and steel mill rolls and rotary feeders. While the Services segment will remain the core for some time, it is clear developing new Products will be a major engine for growth.

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

Analyst:  Daniel Ireland, direland@ccz.com.au, +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.

--- click on the link at the top for the full CCZ report on LBL ---

Tiny family-run business focused on the provision of laser coating services primarily for mining and manufacturing. Product provides a longer useful life for equipment used for drilling or grinding. Tied to mining capex and share price has languished since 2012.

However company remains profitable and paying a small dividend. FY18 results muted by investment in staff and R&D, however experienced management team believe benefits will flow through in FY19.