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 ---

18/8/20 Laserbond 2020 Annual Report

LBL released their FY20 annual report. Revenue decline of 2% was already flagged in the update provided in the announcement of the United Surface Technologies acquisition, but profits held up better than I expected to be flat on last year driven by strong gross margins in the Services division.

The Products result was disappointing given it was expected to be the big earnings driver in FY20, but the outlook remains positive with management confirming orders up 10% with shipment delays meaning revenue recognition was deferred to FY21. Tracking US exports suggests this is true with a number of shipments already sent in FY21 with some customers having multiple orders already.

Technology segment also didn't register a licensing sale which was originally budgeted, but given how conservative management is I expect they will record at least one in FY21.

A Technology sale combined with pent up Products growth and a $4m contribution from United Surface Technologies means FY21 should record extremely strong revenue growth on FY20. Margins are a bit trickier to forecast but even if they stay flat it means LBL will do $4m NPAT which would be extremely cheap on the current market cap of $48m