Australia | Sep 14 2022
ALS Ltd has a bold plan to reduce its exposure to traditional commodity price cyclicality, which brokers believe is achievable in the longer term.
-ALS outlines five-year growth plan
-Priority to expand Life Sciences division
-Battery minerals to reduce Geochemistry cyclicality
-Still some shorter term risk
By Greg Peel
ALS Limited ((ALQ)) began life in 1974 as Australian Laboratory Services, providing mineral testing for miners and drillers. More recently the company expanded its services into industrial sectors, such as petrochemicals and water, and into Life Sciences, where testing is conducted on the likes of food an pharmaceuticals.
ALS is a global operation.
Because of the domination of the minerals testing business in the past, ALS has always been perceived by the market as a cyclical stock – beholden to the ups and downs of commodity prices and subsequent exploration investment and testing demand. But through organic growth and acquisitions, the Life Sciences division now represents some 45% of earnings.
Life Sciences is seen as less cyclical, as opposed to Geochemistry (minerals and industrial). To that end it has been the company’s ambition to increase its market share of testing in this field to offset exposure to commodity price fluctuations.
At its investor day yesterday, ALS reiterated its five-year plan.
The company aims to grow revenues and earnings through to FY27 at a compound annual rate of 8%, which breaks down into organic growth of 6% (including 7% for Life Sciences) and acquisition growth of 3% (including 7% for Life Sciences).
Group margins above 19% are expected and cash conversion in excess of 90%. Targets imply 50% five-year revenue growth and 55% for earnings. Return on capital employed (ROCE) is to be greater than 20%.
Can they do it?
Brokers believe they can.