XRF have announced the half yearly results as follows:

XRF announces record half‐year result

XRF Scientific Ltd (“XRF” or “The Company”) today announced its results for the December 2023 half‐year:

Key Highlights

 Sales Revenue up 6% to $28.6m from $27.1m

 Net Profit After Tax up 20% to $4.5m from $3.7m

 Record quarterly Profit Before Tax of $3.4m in December Q2

 The business sales revenue and NPAT are growing quite well in Australia with the European division struggling somewhat.

The Consumables division had a strong half, generating a profit before tax of $2.9m from revenue of $9.6m. The mining sector remained the key driver of activity, in which our products are consumed for sample testing processes across production and exploration.

The Precious Metals division delivered revenue of $10.4m and a profit before tax of $1.8m. We experienced high levels of reoccurring orders from mining customers, as increased sample testing requires regular recycling of spent platinum labware products. Economic conditions were challenging for our Germany office, however their results are expected to improve in the second half.

The Capital Equipment division delivered a profit before tax of $1.7m from revenue of $9.7m. $1.1m of Orbis Mining revenue was delayed into the second half, which is expected to be a strong period for the division. Included in the result, Orbis Mining generated revenue of $1.8m (1H23: $3.3m) and total profit before tax of $0.4m (1H23: $0.7m) (50% of PBT allocated to non‐controlling interest). International sales are gaining momentum, particularly in the Americas where significant sales have been achieved.

So in regards to a valuation,

Assuming a NPAT of $9.90 Million in 24/25 ($4.5m + $4.5m x 20%)

So $9.90 Million / 138 Million shares = $0.07174CPS earnings

Valuation = $0.07174 x 15PE = $1.08 per share as a good growth stock

Or as an exceptional growth stock which I believe it is $0.07174 x 18PE = $1.29 per share

All up another very good result

Why i own this link now works

https://www.canva.com/design/DAFymuExLMk/CT09dK5V32_oigsleW4x6Q/edit?utm_content=DAFymuExLMk&utm_campaign=designshare&utm_medium=link2&utm_source=sharebutton

Director buying ~170k on market at $13.20.

Combined my notes on the 30 Sep 2023 Quarterly Update and today's meeting with Vince Stazzonelli.

Discl: Held IRL and in SM, looking to top up IRL if the price falls closer to $0.90.

Built this simple revenue xls to get a better perspective of the 1QFY24 results against FY23, will add in subsequent quarters

• Solid result with PBT growing much more than Revenue
• Consumables was up 15.8%, Capital Equipment was up 27.5% but Precious Metals was down 14.9% over the PCP
• Revenue is 5.9% lower than the average FY23 quarterly revenue (average is annual revenue divided by 4)
• Not a concern given the large forward orders held for Precious Metals, but puts the 1Q result in better context, taking cue from concerns previously about the rate of growth from H-to-H
• All segments appear to be firing, with the order book for capital equipment at record levels, and production for some products is now being scheduled for the June 2024 quarter

TAKEAWAYS FROM VINCE MEETING

Industry Tests to test quality of a product which XRF Supports

• XRef Analysis - using X-Ray Fluorescence analytical technique to determine the major components of a sample
• ICP Analysis - ICP (Inductively Coupled Plasma) Spectroscopy is an analytical technique used to measure and identify elements within a sample matrix based on the ionization of the elements within the sample.
• Gold - FireAssay and PhotonAssay (C79’s technology)
• Platinum Labware - this is used in the sampling process. XRF manufactures Platinum Labware for all machines, not only XRF-specific machines

How the XRF Equipment Comes Into Play

• Orbis Mining Crushers - breaks down (crushes) big rocks to provide powder samples, which are then used as inputs to the various tests
• XRTGA Thermogravimetric Analyser - a high-temperature furnace, heats up the sample to run tests at different temperature points
• Market is dominated by key competitor: Leco
• XRF’s benefits over Leco units:
• 30 samples at a time vs 18
• Has heating and cooling cycles to speed up the process
• User friendly Touch Screen vs separate computer console
• Reputation of building reputable products
• Provides complementary data for XRF analysis
• XrTGA opens up access to new markets for XRF - Pharmaceuticals, Food, Agri-Products, Plastics etc
• Capital equipment should have at least 7-8 years of life through to 15 years
• Drives other products - spare parts, labware rework, consumables

Manufacturing Capacity

• Solved factory capacity issue for Capital Equipment this past quarter
• Can ramp up production across all 3 segments by adding more shifts - no further major spend to boost capacity is anticipated

International Expansion

• Already have presence in Europe (Germany and Belgium), North America (Montreal), Australia and parts of Asia
• Direct sales are fulfilled in Australia
• Large network of Distributors which are required to provide on-the-ground customer support
• Not in a position to open offices in many countries - driven by product line and the individual needs of the countries

Cost Pressures

• Cost pressures of the last 12-18M have eased in the last 3-6M - lead time blow outs
• Able to pass on price increases to customers who mostly pay based on the metal spot price at the time of invoice
• Employees were given good pay increases to retain them

Customer Demand

• Exploration activity mostly focused on Rare Earths, Lithium
• Exploration spend did not fall in Australia - Gold spend did fall, but Base Metals, Iron Ore continued to perform well
• Have not seen anything impacted by a slowing of Chinese demand

Capex Management Approach

• Dividend payout ratio is around 60% - this level of dividends is able to provide required capital for R&D, Inventory and Working Capital
• On the lookout for bolt on acquisitions - generally like to issue script to fund these acquisitions to incentivise vendors
• Ideal targets are (1) lab products which have business synergies with XRF’s products (2) used by existing customers (3) are under-developed in market potential
• Not interested in building business scale as XRF is at “about the right size” - focus is on value adding acquisitions

Key Investor Misunderstanding on XRF

• Investors misunderstand where XRF sits in the laboratory process
• High quality products
• Strong IP
• Essential in providing data to mines, industrials
• Critical to customers processes

Well it appears that my days as a valued member of Capital IQ pro are numbered

I've been blocked from looking at the most recent estimates

But I still managed to find that XRF had received a downgrade from an unknown broker. My guess it is Euroz

Revenue downgrade of 9%

Sentiment changed to hold

Price target maintained at 1.22

Since Aug 2023, XRF has dropped more than 9%

[held]

Vance S and David B bought around current prices at market. Small purchases ( ~$43k split between them), but a good sign nonetheless, and they may not be done buying yet!

Adding further info to my comment on why the share price fell. I won't worry about drawing the graph as the numbers show the trend well enough.

My last comment mentioned margins fell, but it was only minor about 2% 2H2022 versus 2H2023

However of most concern is the revenue growth. It was only 4% from end of 1H2023 to 2H2023 versus 16% from end of 1H2022 to 2H2022.

Also earnings between 1H2023 and 2H2023 was only 5% growth versus 22% growth between 1H2022 to 2H2022

In summary it seems both revenue and growth stalled from the beginning of the 1st half to the end of June 2023 down to single digits.

The market reacted as expected, even though the numbers looked good,because the growth from previous period was not as much as opposed to the corresponding period. I think market wanted consistent double digit growth but unless I did something wrong above, it looks like growth is becoming marginal.

[held]

XRF Scientific Ltd (“XRF” or “The Company”) today announced its results for the June 2023 full-year: 

Key Highlights

• Sales Revenue up 38% to $55.2m from $40.0m

• Profit Before Tax up 36% to $11.1m from $8.2m

• Net Profit After Tax* up 26% to $7.7m from $6.1m

• Operating Cash Flow up 167% to $8.4m from $3.2m

• Profit Before Tax of $2.9m and Sales Revenue of $14.7m in June Q4

• Final fully franked dividend of 3.3 cents per share

The business sales revenue and NPAT are growing quite well in all divisions as sales are up 38%

My previous assumption for NPAT was $8.69 Million with the

actual being $7.7 Million,

Perhaps I was being a bit optimistic considering NPAT was up 26% from the previous year,

But XRF have also moved into the 30% tax bracket as they were only paying 25% previously,

So this affected the NPAT also by $555,000,

So in regards to a valuation,

Assuming a NPAT of $9.63 Million in 23/24 ($7.7m x 25%)

So $9.63 Million / 136 Million shares = $0.0708CPS earnings

Valuation = $0.0708 x 15PE = $1.06 per share as a good growth

stock

Or as an exceptional growth stock which I believe it

is $0.0644 x 18PE = $1.27 per share 

All up another excellent result

David Brown: Consideration $60,180

Securities   b) 3,059,163   Securities held after the change b) 3,110,163

Good 1yr Price trend here

Adding further on the latest straw with some back of envelope calculations

Assuming that NPAT reaches 11m this financial year as seen in the latest update, then that's a forward PE of 15 based on current market cap.

Currently trading at backward PE of 23. But with NPAT and revenue growing in the double digits.

Given the double digit growth, assigning current PE of 23 instead of the backward figure and forecasting EPS of around 11/160=0.068, a share price of around 1.58 when FY23 ends seems reasonable. However that also depends on whether this is a continual trend or whether XRF will hit a speed bump from a downturn in mining and exploration as a result of a possible recession. Think this is the big question I'm still asking when reviewing the results although they seem confident that there is enough forward demand till the end of the year.

Also need to thank @Wini for bringing this to attention during 2020 when I first entered but as always too late to put the trade in SM. One of the rare cases where I didn't worry too much about the holding!

[held]

My notes from the SM meeting with Vance, which helped frame my thesis and buy decision. Will be nothing new for long-time followers of XRF, but XRF was new to me, so had to go back to understanding and summarising the basics of the business. Have progressively added IRL - price has been stubborn in the past few weeks!

Discl: Hold IRL and in SM.

SCOPE

• Manufacture of Products for Sample Preparation Process
• 70% Mining - Miners and Regulatory
• 30% Materials companies - Cement, Steel - ensure quality control of finished goods and raw materials that are being produced
• Exposed to Iron Ore, Base Metals, Gold

STATE OF BUSINESS

Capital Business

• Demand for capital machines robust - 27% of revenue
• Includes 1-2 years of spares

Consumables Business

• 33% margin
• Sticky revenue as customers do not like to change - some require custom formulation to analyse samples and fast turnaround of orders - able to pass on metal increases to customers

Precision Metal Products

• Recycling used metals - repeat revenue

Platinum Products

• Platinum is key - temperature resistant, does not contaminate samples
• Currently losing ($0.8m) but growing in $m revenue
• In expansion mode - expanding MEL facilities, opened German Sales office
• Make-to-Order manufacturing
• Tooling and facilities are set up for multi processes - 3-4 weeks turnaround
• Use scrap metal from customers which are pooled
• Very little recycle loss - this is a weight game
• Cost is made up of cost of metals + fabrication cost - requires end-to-end admin of the precious metals
• Main competitors are in Europe, hence the German sales office

MARKET SHARE

• Machines - about 10 players, but XRF is the biggest
• Chemicals - 50% worldwide - competitors are in Canada. China has equivalent but is not trusted
• Platinum Lab Products - leader

CUSTOMERS

• Key geographies - Australia, Europe, North America
• Growing countries - India, China, Indonesia, PNG, Malaysia, Vietnam
• Revenue is mostly linked to operational/production phase of operations
• Vast majority of sales are direct sales

DISTRIBUTORS

• 20-25 strong distributors - XRF products become part of other products that the distributor sells
• XRF is the only company which manufactures all 3 product lines
• Distributors buy as a customer to get volume discounts, they then add margin - reasonable levels of inventory is usually held for chemicals and parts

GROWTH AREAS

• Geography as mining cycle improves
• Precious metals
• Increased range of products
• Increased demand from China and Brazil - move from cheaper way to a better results focus

ACQUISITIONS

• Have taken a disciplined approach based on set criteria - focused on lab-like products
• Orbis acquisition - allows sale of product into existing customers, adds to breadth of product range, XRF provides customer certainty vs a lesser known/small company

OTHER POINTS

• Decarbonisation - XRF has exposure through metals which are required in the manufacture of products eg. Lithium, copper

INVESTMENT THESIS

• Exposure to the broad mining and materials sectors via the critical sampling process - not restricted to one mineral but to the sector as a whole
• Sampling process is mandatory, non-discretionary - ongoing need for consumables, sticky customers
• Flywheel of (1) reputation (2) breadth of products (3) high quality (4) innovation via new products (5) patented formulations - ensures retention of, and sticky, customers - ability to pass on higher costs
• Many ways to win via different, but complementary product lines - respond to newer technologies and R&D focus to release new products
• Global leader, very few competitors that can compete on service, quality, cost and turnaround time
• PE 19.9x, very high quality earnings, 

RISKS

• Capital Spend and/or acquisitions that do not make sense against product suite or strategy or that will bog the company down in integration into existing operations
• Loss of key customers, bad press on bad quality impacting customer sampling process
• Emergence of competitors which have the ability to replicate XRF’s competitive advantage
• Slowdown in R&D focus
• Slowing growth and/or margin

21/2/23 Appendix 4D - Half-Year Report

Another fantastic result from XRF, it says a lot that I almost expect it from them at this point.

It's a well covered stock now on Strawman so I will let others break down the headline numbers, but one thing I have been focused on for some time with XRF is how the business is far more capital light than headline numbers suggest.

A simple calculation for XRF shows roughly 22.5% return on equity (rolling 12 months profit before tax of $10.17m on equity of $44.89m). However within that the incremental return on equity is far stronger at 76% for this current half:

$5.67m 1H23 profit before tax minus $4.5m 2H22 profit before tax is $1.17m incremental PBT on $1.54m incremental equity ($44.89m 1H23 - $43.35m 2H22).

Ultimately it is the incremental return on equity that drives share prices rather than the absolute level.

23/8/22 Annual Report to Shareholders

A fantastic end to FY22 for XRF. After run-rating ~$9.3m for the first three quarters of the year, the fourth quarter recorded $12m in revenue with commentary calling out continued buoyancy in mining and materials as the main driver.

Looking at a divisional level, Consumables continues to perform exceptionally well recording $4m revenue (~$2.7m run-rate through first three quarters) and maintaining record profit margins despite higher lithium input prices.

Capital Equipment was roughly in line with the previous quarters but based on commentary of a record order backlog there is probably some issues with supply chains restricting sales.

Precious Metals had an outstanding final quarter, recording $5.9m revenue compared to a ~$4.1m run-rate through the start of the year.

The market will rightfully focus on the strong revenue growth but it is worth mentioning margins did fall despite the stronger revenue in the 4Q, largely because of the shift to lower margin revenue away from Consumables. Precious Metals is still scaling up as a division but the potential is starting to shine through, particularly from a revenue point of view.

The other weak area was cash flow, largely due to higher inventories. Unlike many other businesses that are physically holding more inventory than normal that may lead to issues in the future, XRF has seen an explosion in the price of the raw lithium they hold in inventory for use in their Consumables products. The important thing to watch here is management are able to continue to pass on the higher costs through to customers. If so, the working capital mismatch will unwind as higher revenues come through, if not margins will take a hit in coming reports. For what it is worth, management remain confident of passing on higher costs.

27-Aug-2021:  Click here to watch Luke "Wini" Winchester from Merewether Capital talking on Ausbiz on Friday (27-Aug-2021) about the recent (24th Aug) full year results from XRF Scientific (from the 3:30 mark of the video), Kip McGrath Education and Austco Healthcare.  Wini was the Emerging Companies Portfolio Manager at Oracle Investment Management (and might still be according to his LinkedIn profile), and is now the CIO of Newcastle-based Merewether Capital, which ARC have just bought 40% of.  Luke discloses that he owns all three of those companies (XRF, KME and AHC) and he's bullish on them clearly, and when Wini is bullish on a company it's worth noting!

Disclosure:  I do not hold any of those companies in RL, but XRF is in my SM portfolio (and ARC is on my watchlist).