ALS’s FY22 result achieved guidance, but investors should be taking notice of the outlook commentary. Specific details will emerge at the approaching annual meeting in late August, but we think the ship is ready to sail now.
ALQ’s FY22 underlying EBIT of $409 million was in line with expectations. Lower interest boosted net profit which at $264 million was 42% ahead of last year and in line with the $260-265 million guidance issued in early March 2022. ALQ may issue guidance for 1H23f at the upcoming August annual meeting. On the basis of what the company is saying, things can only get better from here.
Divisional commentary is very positive. In Commodities, for example, organic revenue growth of 30.8% in FY22 saw EBIT increase to $245 million on an expanded margin of 29.9%. Geochemistry sample volumes increased 32% and is being pushed along by continued demand for commodities and battery metals. Junior miners are raising significant amounts of capital which contributes about 40% of sample volume. ALQ noted that sample volume growth is spread across a broad range of metals.
Life Sciences saw revenue growth of 24.2% with underlying EBIT up 29.3% again driven by strong volume increases and improved operating performance. The Nuvisan acquisition (49% stake completed in October 2021) is quickly fitting into the company’s business plan. And expands ALQ’s exposure to the biopharmaceuticals testing industry.
The Industrial division was hampered by COVID-19 impacts which should begin to abate.
The next 5-year plan is under consideration. ALQ’s review of its just completed five year plan demonstrates that even ambitious targets can be achieved. The company aimed to lift FY17 revenue from $1.3 billion to over $2 billion and achieved $2.2 billion. Similarly, FY17 EBIT was $192 million and the 5-year target of $400 million was achieved at $409 million. The 5-year compound annual growth rate of earnings per share achieved 19%. The refreshed 5-year plan will be presented at the annual meeting in August, and we think this will be a catalyst for the stock.
FY23f consensus forecasts may already be too light. ALQ has added a further 10-15% capacity to its geochemistry sampling unit on top of the 15% increase effected in FY22. Price increases are also playing a part in lifting expectations for FY23f. Overlaying some efficiency gains will help to increase operating margins as well.
ALQ’s financial position is strong. A leverage ratio of 1.9x and EBITDA interest cover at 15.3x, combined with liquidity of $432 million indicates a healthy situation.
The share buyback ended in December 2021 with 4.3% of the share base acquired at an average share price of $7.04 per share. ALQ increased its final dividend to 17cps (30% franked) for a full year dividend of 32.8cps representing a 60% payout ratio.
Investment View
Our November recommendation upgrade to Buy has yet to bear fruit, but on the evidence at hand, this cannot be far away. Peer results are confirming the industry is getting busy on the back of the strong increase in resources activity and this will be a multi-year upcycle.
Risks to Investment
View Growth in commodity companies’ exploration may not be as robust and enduring as expected. Changes to regulations in testing may affect growth in volumes.
Recommendation
We have retained our Buy recommendation.
FY22 Result
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