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A good Straw offers a clear and concise perspective on the company and its prospects.
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Laserbond has updated the market with further details about the gateway purchase -
Laserbond (ASX: LBL) updated valuation of $1.00 based on their 1H FY24 results, and Investor presentation released on 21/02/204.
Key question as always; do management deserve shareholder trust based on their strategy, execution, and capital allocation decisions.
Levers for multi-year domestic growth in place with their WA Expansion through the Gateway Group acquisition. Consider it to be an excellent strategic fit for both companies and structured so that both are incentivised to perform.
They still deserve my trust, so I see this an opportunity to accumulate during the current SP drop due to their softer 1H FY24 performance.
Positives
Strong performance of Services Division with revenue of $11.19 m; a 15.4% increase vs. $9.69 m in 1H23 and an almost doubling since 1H22.
Revenue increase of 8.7% vs. pcp $ 20.28 m from $ 18.65 m
Gross profit margins increased slightly from 51.8% in 1H23 to 52.2% in 1H24
Signed agreement to purchase an initial 40% of Gateway Group with an option to move to 51% within three years, securing a foothold in Western Australia.
21.1 % increase for Cash in hand vs. pcp. Working capital at $17.94 m as of 31st Dec 2023
Interim dividend of 0.8 cents per share, fully franked.
Negatives / What to Watch
Revenue recognition delays in their Technology business.
Supply chain issues in their Products division.
Expense increase to $6.60 million vs. $5.04 million in pcp
EBITDA decrease of 9.1 % vs. pcp
NPAT decrease of 15.6 % vs, pcp
Company's Future Focus
Expansion into WA provides an opportunity to fill a gap in the market for sophisticated and bespoke technology and service delivery for a range of large, heavy-industry customers.
Appointment of a buy-side broker to advance progress into the North American surface engineering market.
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
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
Update 23/02/2024
Updating based on 1H FY24 results.
Management have reiterated that their FY25 revenue target of $60m will be met, albeit with an acquisition.
The acquisition makes the numbers a little messy as its hard to tell exactly how much contribution it will have to the bottom line but margins for the half disappointed so I will have to revise down some margin expectations at FY25.
Some revision of assumptions:
At 20x PE for FY25 gives share price of around $1.04. Discounting this back gives a valuation of $0.90.
Disc: Held IRL and on Strawman
Update 21/08/2023
Update based on FY23 results:
Management once again reiterated their revenue target for FY25 for $60m. Now only 2 FY's away so discounting back 2 years gives us a valuation of $1.08.
Overall track record of the business in achieving targets has been questionable however. As shown in the current report which once again delayed any revenue from the technologies division. Although they did say this was timing related and that it should be recognised in the next report. Time will tell I guess.
I think the current share price ($0.84) assumes that revenue in FY25 will be around $46.5m on a 12% net margin. So if the next few reports show that they are getting close to the revenue target, we could see a decent re-rate.
Disc: Held IRL and on Strawman
Original Valuation
Very brief look at the company.
Management are guiding for $60m revenue by FY25.
Assuming they hit that target and at net margins of 12% gives NPAT of $7.2m.
At a PE of 20x in FY25 would give a share price of $1.31
Discounting this back 3 years at 10% pa gives valuation of $0.99.
Disc: Have taken a small position IRL to continue to monitor, have placed a buy order on SM to reflect this.
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...
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:
For those of you (much like myself) who like pretty pictures...
Division updates:
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...
Share price decline on some higher-than-average volume isn't great in the lead up to the results - may be nothing.
DOES ANYONE KNOW WHAT THIS IS REGARDING?
Dear Shareholders
Market Clarification
Investors may have read an online post today presenting misleading information about the
company and its performance and asserting personal opinions about the current
management and board.
LaserBond rejects these unfounded and disingenuous allegations. The individual responsible
for circulating this information has, during the course of 2023, made numerous attempts to
return to LaserBond in a non-executive or executive role, all of which have been unsuccessful
for several reasons. The Board does not believe their return is in the company's and its
shareholders' best interests.
If anyone would like further information, please email corporate@laserbond.com.au
providing your name and contact number, and the Chairman, CEO and/or CFO will be in
contact directly:
Approved for lodgement by the Board of LaserBond.
Wayne Cooper spoke at the AGM today -- I didn't attend, but in the release to the ASX there was an update on the revenue growth so far for FY24.
Before that, it's worth highlighting (as Wayne did) the last 3 year's worth of growth:
So far in FY24, the company has seen revenue increase by 12.6% above the same period last year. (he actually makes the comparison to FY22 but I assume that's a typo)
At any rate, in his words, the company is "well positioned and primed to continue its strong growth". He once again emphasised the investment made in people, skills and equipment.
Importantly, Wayne reiterated the FY25 revenue target of $60m. Obviously, that's great to hear. But it will require an acceleration of the average growth achieved in recent years, and a doubling of the growth seen in the first quarter.
I've lined up a meeting with Wayne for November 21 to see if we can't get a better grip on the reasons behind this expectation. But if they get anywhere near that target, and more or less maintain margins, the current PE of 20 seems rather tame.
Disc. Held
Not covered with glory here. below is my LBL dividend statement! how did this happen? i had a bushranger (low) bid in for a lot more stock, in the end of year volatility i got hit for 76 shares and then i hoped it would pull back and complete the trade or something, no luck, dumb move. should have raised and closed. now my trade has expired! at least its franked! lol
Hey Straw people,
I'd like to share with everyone the experience of the site visit and meeting with Wayne and Matt - the duo steering the LaserBond ship a few weeks back. (Disclaimer: I hold LBL in my real-life portfolio)
I had a really good time there at their HQ in Sydney. It was an incredible and eye-opening experience. Wayne and Matt were very friendly and approachable and throughout our meeting, were also very generous with their time and knowledge, shown in their willingness to listen to my line of questioning and how thorough their answers were.
I managed to ask them a few questions about their backgrounds, competitive landscape, organisational structure, and their thinking process on capital allocating topics. A few are as follows:
And to reflect on the general feeling about the business, I genuinely believe that there is a sense of cost-focus and a frugal approach to most things around the business. This was shown in minimalistic and functional offices and furniture (almost to me too simple and there's nothing that screams ostentatious or fancy), most of the tools and equipment in the lab are second-handedly purchased though still very functional, and the Wayne playfully refers to himself as T-rex - an analogy for having a deep pocket and short hands.
I talked and discussed about LaserBond a bit more here if you are interested in learning about the company.
I hope you find this helpful.
I'm going through the process for voting at the Laserbond AGM and it seems that there is no way on online voting - the only options are to send the proxy form directly to Laserbond by:
or hand it in in-person at the AGM.
This strikes me as:
Maybe I'm missing something - do many other ASX-listed companies not support online voting?
@Wini very interested in your view on $LBL.
It was on my shortlist of "companies I would like to increase if it hits certain criteria". It did. So I added on SM and RL. Unfortunately, I didn't see if there was an investor call today and, in any event, I was spread too thinly and missed it if there was.
Keen to hear what any other StrawPeople observed.
Revenue up 7% on prior half. H2 revenue of $19.9 M. ($38.6 M for FY2023).
Gross margins 54% (53% prior half).
NPAT: $4.76 M
Diluted EPS: 4.34 cents per share for FY 2023.
Final divvy: 0.8 cents per share
Outlook: Laserbond maintain FY2025 $60 million revenue target remains on track.
$2.5M id licencing fees that were guided to be earned in FY2023, have been delayed and will be recognised in FY2024. Flagged recent sales wins in India and another large offshore OEM manufacturer expected to see revenue recognition in FY2024.
DISC: HELD
Big(ish) drop on high volume leading into the results - usually not a great sign.
Interested to see if there is anything to it.
$LBL posted their results today.
After a rollercoaster week of results, I'll post their entire results summary because it is so well written and shows a really well-managed founder-led company. (My thanks for @Wini for putting me on to them).
My Takeaway: Great results on every dimension: both segments, financials, cash, dividend, outlook.
Held: RL (1.2%) SM (2.9%)
20/10/22 LBL 2022 AGM Presentation
Coming back to LBL's AGM after Wayne's meeting the other day where I thought he did a fantastic job of describing the business and the positive outlook. Just a few short years after I attended an AGM where I was the only non-family member or employee present, LBL now has a much wider following with various brokers and funds on board now.
The update on FY23 was strong at the AGM, 36.4% revenue growth in the core Products and Services segments, with the Technology sales yet to be delivered and revenue recognised. No guidance on margins was given but I was extremely impressed at how they were managed in FY22 and there was commentary that inflationary pressures were yet to impact the business with price increases successfully passed on.
I am expecting 50% revenue growth for LBL in FY23, while the 1Q23 36.4% growth rate is below trend, the fact Technology sales haven't been booked yet will make up the difference.
I really don't intend to come across as gushing fan-boy when I speak to some of these management teams...But sometimes our guests say all the right things.
I think Laserbond is very interesting at this juncture, and can see why a lot of people like it.
Personally, I really like CEOs with an engineering background. They may not have the polish of a career executive, but they tend to have a relentless focus on the product and are usually pretty straight shooters when it comes to investor communication. And with Wayne, you also have someone who has immense experience and a huge alignment to shareholders.
Despite being a $100m listed company, it very much has a family business vibe, and Wayne really managed to underscore the kind of things you tend to get with those operations -- a longer term focus and an adversity to undue risk.
As was made clear during the chat, the Technology division is the one to watch. Licensing the tech and supplying the equipment and consumables seems like a great way to scale into other markets in a way that is very capital efficient. Plus, you have to love the 'razor & blade' model, with them taking a 15% clip on all consumables.
The target of $60m in revenue by FY25 -- which Matt and Wayne were careful to stress is NOT a forecast -- represents a double from current levels. Moreover, Matt said he thought *NET* margins could expand to as much as 20%. That gives you an EPS of 11cps, compared to 3.5cps in FY22. In that context, the current PE of 25 does not seem excessive -- although, as always, only on the proviso they get close to this target.
As I mentioned in the chat, I personally don't get too hung up on the specifics of these targets, but if it's directionally accurate then there's likely a good degree of upside for shareholders from the current level.
One of the more important structural/macro trends I continue to think is important in the coming decade or so is the domestic capex boom we will see as a result of a reduced dependence of China and Government stimulus (pretty much the thesis people like Russel Napier are pushing). If there's any legitimacy to that, it seems it'd be a good tailwind for a business like Laserbond.
Another factor that is a positive for me is that more than a few smart investors I know really like the company -- including Wini (who has held on Strawman since 2018) and Steve McCarthy from DMX. Not to outsource any thinking or responsibility, but that is something i tend to notice. I'm more than happy to ride coat tails!
Shares are pretty thinly traded, but for a long term hold I think it looks very interesting and plan to add a small position.
Oh, and I definitely plan to take up Wayne on his offer and arrange a site visit. Once I have details i'll share them here.
Ahead of our meeting with Wayne Hooper CEO of $LBL later this month, I recently came across Owen Rask’s (aka @Owen ) interview and site visit. It’s a really good discussion of the history of the company, the family-owner-manager mindset, economic drivers, customers, and the technology licensing strategy.
Thoroughly recommend to those interested.
edited to add the link: https://youtu.be/geRLAorTM5E
Disc: Held in RL and SM. (Small position)
https://podcasts.apple.com/au/podcast/australian-investors-podcast/id1414707038?i=1000583913077
FY23 shapes up to be a big year for LBL with some delayed FY22 revenue set to be recouped alongside the return of international travel allowing for much better pathways to sell their Products and Technology offerings. The strength in FY22 margins gives me confidence that the revenue growth won't be cosmetic and should flow through to significant profit growth as well. With a full year of contribution from acquisitions (with LBL tech now in them), delayed Tech sales and pent up demand I can see 50% revenue growth to $45m and net margins expand from 11% to 14%. $6m NPAT on a 20x multiple is close enough to $1.10.
25/8/22 LaserBond 2022 Annual Report
A very strong set of numbers from LBL to finish the year. After downgrading revenue guidance from $35m to $30-31m a couple of months ago I had fear the numbers could look ugly but it appears the revenue miss was largely from delayed Technology sales with the core Services and Products segments doing well and remaining very profitable.
Arguably the numbers look even better than the headlines suggest, with the company failing to normalise out the effects of Covid grants and a lower tax rate from asset write offs in the prior period. Despite missing their revenue targets gross margins improved from 51% to 54%, a fantastic result considering I expected GM's to weaken after revenue contributions from new acquisitions running lower GM's before LBL's technology could be implemented and scaled.
Adjust for the Covid benefits last year and PBT margins grew from 11% to 17% with the total number of $5.3m nearly doubling on last year.
Like a lot of other businesses the balance sheet has some interesting movements with receivables spiking (watch this in the next period) and higher inventories as well. Digging into the notes (7), nearly all of the inventory build is work in progress which would be the Tech sales that fell into FY23. I'd expect that to unwind relatively quickly given management were originally hoping to recognise those sales in FY22.
Overall commentary was very positive with management believing international growth momentum can recover as Covid restrictions ease, they are targeting an acquisition in WA to bolster their national footprint and re-iterated a $60m FY26 revenue aspiration.
LaserBond Limited is pleased to offer you the opportunity to subscribe for fully paid ordinary shares in the Company (New Shares) under a Share Purchase Plan (SPP).
Under the SPP, Eligible Shareholders have the opportunity to subscribe for up to $30,000 of New Shares at an issue price of $0.87 per New Share (Issue Price). The Issue Price represents a 5.4% discount to the closing price of Shares on 14 December 2021 and a 7.7% discount to the volume weighted average market price of Shares over the last five days on which sales of Shares were recorded on the Australian Securities Exchange (ASX) immediately prior to the Company undertaking its recent placement.
To view the Share Purchase Plan Offer Booklet, please click here
Not a lot of detail as to what the funds will be used for - in the SPP booklet it just says "The Board presently intends that the funds raised from the SPP will be applied towards working capital"
13-Sep-2021: CCZ Equities Research report: LaserBond (LBL): Laser focused on global growth opportunities
Analyst: Thomas Chapman, email: tchapman@ccz.com.au, 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
Top 5 Shareholders
--- end of excerpt - click on link at the top for the full CCZ report on LBL ---
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, direland@ccz.com.au, +61 2 9238 8239
Stronger second half expected, Products division performing well
--- click on the link at the top for the full CCZ report on LBL ---
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
--- click on the link at the top for the full CCZ report on LBL ---