H1 2020 results released today.

Good result on bottom line (NPAT = $1.6M ie 51% growth) suggesting management paying particular attention to cost structure.

Only question relates to revenue (5% growth). This suggests either (i) customer demand is poor or (ii) management are holding back on driving growth preferring to focus on operational improvements. I am betting on the latter.

Valuation:

Assuming NPAT can be repeated in H2 then FY2020 NPAT = 3.2c per share.

Currently PE ratio is weighed down by small company size and investor sentiment that XRF is a cyclical mining service provider. The challenge for the company will be riding the vicissitudes of the commodities cycle and its capability to maintain steady earnings growth.

On a 12x PE (which is highly conservative) the business is worth 38c per share.

Quick valuation   23/5/2019

FY2019 NPAT target = $1.8M  (80% growth on FY2018)
PE ratio = 20x  (conservative considering growth rate)
Gives market cap target = $36M
Shares on issue (fully diluted) = 133.8M
Gives share price target = $0.27
 

27 Aug 2019
FY19 RESULTS
Consumables, Capital Equipment and Precious Metals divisions all performing well.
German acquisition is reducing losses and should turn a profit next year.
Plenty of leverage in the business to grow all divisions in multiple geographic jurisdictions moving forward.

Key financials:
Group Revs $29M. (up 20%)
Group NPAT $2.01 (up 109%) though net cash flow significantly higher at $3.9M
1c fully franked dividend paid in October.

High level of confidence that business can  grow NPAT at 20+% in future years and warrant a 20x PE. 

Valuation:
Conservatively, lets forecast FY20 NPAT at $2.5M.
Market Cap @ 20x = $50M
Shares on issue = 133.8M
New price target = 37c