What's in it?

FY23 RESULT

Need To Know

• Underlying FY23 net profit $324m +23% yoy, ahead of guidance ($312-322m) and consensus $317m
• Strong operating cashflow and final dividend 19.4cps (10% franked)
• On-going acquisition strategy supports long term growth

A busy year of acquisitions and internal reshuffle has not prevented ALS from delivering an above consensus result.

FY23 underlying net profit of $324m increased 23% on last year and beat the consensus $317m estimate. Operating cashflow of $440m was up 53% on last year, also comfortably ahead of consensus at $421m. The balance sheet has net debt of ~$1bn placing gearing at 1.8x net debt to EBITDA. The Board declared a final dividend of 19.4cps (10% franked) taking the full year dividend to 39.7cps at a payout ratio of 60%. The existing $100m buyback remains active.

ALS collapsed its Industrial division during the year leaving the two main divisions of Life Sciences and Commodities to represent the business. Life Sciences revenue increased 17.1% with organic growth contributing 5.2%. Underlying EBIT experienced some margin compression due to tough economic conditions in Europe, but still improved its EBIT by 6.2%. Increasing regulation in the global pharmaceutical industry presents ALQ with a long growth pathway.

Commodities revenue increased 22.6% with organic growth 18% of that total. Increasing demand for base metals is supporting premium analytical services such as those provided by ALQ. Geochemistry sample flow is moderating as expected but should improve later in the year. 

ALQ made 13 acquisitions during the year but has maintained a solid balance sheet ready to make further opportunistic acquisitions. There is an emphasis on the Food and Pharmaceutical sectors.

Investment View

A combination of acquisition growth and trend shifts to outsourcing, technology development, greater regulation and digitisation will support the growth. ALQ is allocating approximately $1bn to acquisitions, including the remaining $300m in early CY24 to acquire the outstanding 51% of Nuvisan.

ALQ has previously set out its 5-year strategic plan which entails reaching annual revenue of $3.3bn by FY27f and underlying EBIT of $600m. These are goals, not forecasts, but are quite achievable based on acquisitions alone which would generate the ~12% pa growth required.

On consensus earnings forecasts, ALQ is trading at a market PE multiple around 18x which we do not consider expensive. 

We have retained our Buy recommendation.

Figure 1: FY23 RESULT