ASX:ALQ
ALS Ltd
Investment Summary
The fund managers believe ALS Ltd (ALQ) represents a compelling investment opportunity due to its strategic positioning in the Testing, Inspection and Certification (TIC) sector. In their opinion, ALQ's focus on laboratory testing, with approximately 60% of earnings derived from commodities, is advantageous, particularly as gold and copper prices rise. Management's emphasis on bolstering the Life Sciences division through bolt-on acquisitions is viewed positively, mitigating risks from earnings volatility. Although recent performance has been affected by declining sample volumes from junior miners, the 1-year forward P/E ratio declining from 25x to 19x makes ALQ attractive for long-term investors. Furthermore, the growing regulatory demand for PFAS testing is seen as a significant growth driver that could enhance the company’s earnings potential. Overall, fund managers view ALQ as a high-quality company poised for an earnings upgrade cycle, capitalizing on both commodities recovery and environmental testing trends.
Commentary From The Managers
Endeavor Asset Management
30 Sept 2024
$14.42
- Endeavor Asset Management notes that ALS's (ALQ) September trading update indicated softer performance in its mineral division.
- The decline was primarily driven by weaker results in the Australian and LATAM markets, while North America saw an increase in testing volumes.
- As a result, ALQ's share price fell by 8% in September after experiencing an 8% intramonth increase in August.
- Management's actions suggest they are cooling expectations in light of current market conditions.
- Endeavor is encouraged by ALQ's ability to maintain margins during soft commodity environments.
- ALQ is diversifying its revenue streams into more stable Life Sciences and Environmental divisions.
- Endeavor Asset Management continues to hold its position based on these insights.
Endeavor Asset Management
31 July 2024
$15.44
- Endeavor Asset Management notes a share price increase of 10.2% for ALS Ltd (ALQ) in July.
- This rise was influenced by strong first half 2024 results from overseas competitors in the TIC sector.
- ALS Ltd operates in multiple TIC endmarkets, including minerals, food, and pharmaceuticals.
- Endeavor is enthusiastic about the PFAS opportunity, seeing it as a significant growth driver for future ALQ earnings.
- Increasing global scientific studies are highlighting health concerns related to PFAS.
- As regulatory scrutiny grows, Endeavor expects ALQ to benefit significantly from testing and certification in this area.
Endeavor Asset Management
31 July 2024
$15.44
- ALS Ltd (ALQ) share price increased by 10.2% in July.
- Positive market sentiment driven by strong results from overseas competitors in the TIC sector.
- ALQ's diverse presence across TIC end-markets is a significant advantage.
- Endeavor Asset Management remains optimistic about the PFAS opportunity for ALQ.
- PFAS is recognized as an underappreciated growth driver for ALQ's future earnings.
- Increasing global awareness of health concerns related to PFAS is creating demand for testing.
- ALQ expected to benefit significantly from the growing focus on PFAS testing and certification.
Endeavor Asset Management
30 June 2024
$14.04
- Endeavor Asset Management added ALS (ALQ) to the Growth Portfolio in June.
- ALQ was already held in the Endeavor Balanced Equities Portfolio.
- Expecting ALQ to go through an earnings upgrade cycle.
- Support from an improving commodities exploration environment.
- Structural tailwinds in the environmental division (e.g. PFAS).
- Potential upside from the turnaround of the Nuvisan subsidiary.
Greencape Capital
31 Mar 2024
$12.98
- Greencape Capital has a longstanding interest in ALQ, previously part of Campbell Brothers Group.
- ALQ operates in the Testing, Inspection and Certification (TIC) industry, focusing on laboratory testing and commodities, representing ~60% of group earnings.
- The remaining 40% of earnings come from the Life Sciences division, which is being bolstered through bolt-on acquisitions.
- Despite 10% EPS growth p.a. over the last 2 years, ALQ's share price has remained rangebound due to declining sample volumes and acquisition impacts.
- ALQ’s P/E ratio shrank from 25x to 19x, seen as attractive given its 20% Return on Equity (ROE).
- Greencape Capital increased its position in ALQ at ~$12 per share, expecting a cyclical recovery alongside rising Gold and Copper prices.
- Nuvisan’s weak performance was seen as obscuring the potential value of its remaining stake, coupled with strong performance in other Life Sciences areas.
- ALQ’s Geochemistry division has a competitive advantage through its global software platform, achieving a 50% global market share and ~30% EBIT margin.
- Junior miners represent 20-40% of drilling samples, affecting ALQ's revenue significantly.
- Gold and Copper prices are anticipated to rise, driven by a green energy revolution and other demand factors.
- In the Life Sciences division, Environmental business is largest, with a focus on regulatory testing for contaminants like PFAS.
- Greencape views the Nuvisan acquisition as strategic despite initial underperformance, with a favorable deal structure mitigating risks.
- Overall, ALQ is a high-quality company with potential for recovery, representing a strategic investment opportunity for Greencape Capital.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.