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  1. #1
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    Default Laserbond Ltd - LBL

    I mentioned this micro-cap on the profitable micro-caps thread and thought I might write it up more fully with it's own thread. However, pre-warn readers that this share is small and highly illiquid, so will not be to everyone's taste!

    The company was first formed in 1993 with the aim of providing a parts maintenance service to increase the wear performance of metal parts. They initially provided thermal spray surface coatings, focussing on HP-HVOF (High Pressure High Velocity Oxy Fuel) process. Along with this they also provided cheaper coating methods such as plasma spray and arc spray. In 2001, they launched the Laserbond process, which forms a metallurgical (welded-type) bond between the coating and underlying component using a controlled heat level. This is considered an improvement over the other mechanically-bonded processes.

    In 2007 they IPO'd on the ASX with the intention of raising funds for geographical expansion. Given the size of parts that are re-surfaced, it was not proving economical to transport parts from further afield to the plant at Ingleburn, NSW. The IPO raised $3m through the issue of 15m shares at 20cps. Prior to listing, sales had been steadily rising from $2.6m in 2003 to $2.9m in 2006.

    In 2008, they used the IPO proceeds to acquire Peachey's Engineering in Queensland. The purchase price was $2.5m cash, $0.5m scrip (@15cps) plus earn-out. Sales for Peachey's were noted as $6.8m and EBIT of $1.4m for the 2008 year.

    For FY 2009, with growth in Laserbond and the addition of Peachey's, revenue came in at $9.1m and underlying NPAT at $670k, although some abnormals pulled that down to $271k. Unfortunately, the coffers were drained in financing the acquisition and the company issued 350,000 convertible notes. These notes have the potential to overhang the share price, as they can convert prior to June 2012 at the lesser of 15cps or at 85% of the 5 day VWAP (which could be rather easily manipulated!). It appears that so far, about 110,000 of these notes have been converted at 0.1042 per share.

    During 2009/10, the original Ingleburn plant continued to grow, but problems relating to the GFC and management dented returns from Gladstone (formerly Peachey's). This produced a FY result of $10.4m revenue and $0.5m NPAT. Cashflow remained tight as the earn-out payments were made for the acquisition.

    However, 2010/11 looks like being the "bounce back" year for this business. Ingleburn revenues were up 40% in first half and, while revenues at Gladstone declined, their order book bounced back, setting them up going into the second half. Free Cashflow also turned positive, to put them in a stronger cash position. The recent update from LBL has forecast FY revenues of $12.7m and NPBT of $1.5m. It also noted that the company was now "perfectly positioned" to meet 2012 growth and profit targets (had to put that in for percy - he'll have to keep up with the latest lingo taking us from "well" to "perfectly" )

    In summary, at current price of 11.5cps, the forward P/E is looking like about 8.0 (at 12cps), even after allowing for conversion of remaining notes to about 2m shares. Forward EV/EBIT comes in at around 4.75.

    The company has a reasonable record for revenue growth, so could be a good micro-cap to pick for combined value plus growth going into the next result. Just be aware that they may need to work off the convertible note overhang at some point, particularly if the price were to rise to above about 18-20cps, where it would be worth the holder converting at the 15cps maximum and then gradually selling down. I currently see value as closer to 21cps with upside.
    Last edited by Lizard; 01-08-2011 at 02:20 PM.

  2. #2
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    An unusual trading halt... never had one because un-audited accounts turned out to be surprisingly high and need checking - in this case "significantly higher than what Laserbond consider the market would be expecting". Even more surprising given the substantial profit upgrade of a few months ago!

    I should probably be concerned about any company that finds a surprise in its accounts, but, in the short term, I'm happy with this one and look forward to seeing the outcome.

  3. #3
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    Quote Originally Posted by Lizard View Post
    The recent update from LBL has forecast FY revenues of $12.7m and NPBT of $1.5m.
    Looks like final count will now be $13.28m revenue and $2.06m NPBT. Makes for a 27% increase in revenue and a 237% increase in NPBT over pcp. At 12cps, P/E will be under 6 and EV/EBIT maybe around 3.1.

    Okay, you can all re-rate it now so they can put together a decent WA acquisition!

  4. #4
    percy
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    New lingo is exciting. "Perfectly positioned" must be a new "classic" ,however the PGM [percy gold medal] goes to GXL who have appointed an "acquisition facilitator".
    The question must be asked, do LBL already have one ,or possibly two or more "acquisition facilitators" ?.
    Technical analysis and fundamental analysis have now been overtaken by language analysis.

  5. #5
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    Result out and maiden 0.5cps div to go with the forecast result. Market liked it and bumped it up to 16-17cps, although can't see it going too much further for now unless this whole div-paying, micro-cap stock sector gets a re-rate.

    Forecasting more growth and sounds like they are making progress through rolling out the re-surfacing technologies into Queensland, with intentions to take it to WA sometime soon, so fingers-crossed there is more in this one over the next year. Continuation of second half strength alone should be enough to give it some more interest at the 1H 2012 result.

  6. #6
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    Been making another small leg up and took a 20cps buyer today before the sellers came back out. Settled at 18cps, but getting gradual support.

    Haven't seen an agm date out for this one yet, but any profit indications are likely to be positive on the basis that 2H10 was a large improvement over 1H10, so likely to see a good % increase in any forecasts or updates.

  7. #7
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    A great pic Liz.

    30% plus a dividend in a couple of months.
    h2

  8. #8
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    Had a quick read of their website and a listen to the cheesy 80's music in their video..LOL
    (kinda sounded like a track from the Breakfast Club..hahaa)

    Saying that, this stock is also technically in an uptrend, so will add it to the up trending stocks List.

    A bonus for those who grab this for the div's whilst being in an uptrend~!
    --> Watch THRIVE 2011 a must watch Doco! --> Also watch ETHOS 2011 & share the Awareness~!

  9. #9
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    Outstanding pick Liz.

    Looks to be a very profitable business.
    h2

  10. #10
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    Hi Sulphuric,

    Has been a profitable trade so far!

    Their forecast for first half suggests revenue about the same as 2H11, but NPBT about $0.5m down - although that's not too unexpected when they had a bit of a rush up in profit at the end of second half. I think they are worth about 30cps, but don't expect them to get much past 27cps this year unless they go into upgrade cycle in the second half as happened last year. I'm working on NPAT of $1.7m for FY12.

    If they manage the "investing for growth" part well, then there is quite a bit of upside. But could also be bumpy in a business this size, so I may take a bit off the table somewhere along the way.

  11. #11
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    Quote Originally Posted by Lizard View Post
    Hi Sulphuric,

    Has been a profitable trade so far!

    Their forecast for first half suggests revenue about the same as 2H11, but NPBT about $0.5m down - although that's not too unexpected when they had a bit of a rush up in profit at the end of second half. I think they are worth about 30cps, but don't expect them to get much past 27cps this year unless they go into upgrade cycle in the second half as happened last year. I'm working on NPAT of $1.7m for FY12.

    If they manage the "investing for growth" part well, then there is quite a bit of upside. But could also be bumpy in a business this size, so I may take a bit off the table somewhere along the way.
    Hi Liz,

    my concern with LBL is if China slows down -hard or soft its going to effect LBLs revenue. They seem completely correlated to the aussie mining boom To me the macro risk here is high that LBL might not have the growth its looking for in 2-5 years time? What are your views?

  12. #12
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    Can't really answer - they're such a small player at this stage that it is pretty hard to know what they will be able to do - after all, the mining industry might reduce and make growing the market more difficult, but it won't be disappearing overnight.

    Neither do I see them as a "super-high-quality" company for a long-term hold at this point, so still very much a "spec" in my books which means reduce risk when appropriate. Doesn't mean they won't grow into something more (as, say, Imdex once did), but it's a wobbly path for any company this size.

  13. #13
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    Tidy report out for first half. Some capex to work through for future growth, so hence encouraging holders to take up DRP for the new interim div (0.3cps). Some effect expected from increased fixed costs/capacity initially underutilised but I am working on $1.7m NPAT. I have value to 28-31cps (currently 25.5cps).... notes to convert at 15cps this half should keep the sell side topped up with over 1m shares to go. Enough to let new holders in, not enough to spoil the trade.

  14. #14
    percy
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    Quote Originally Posted by Lizard View Post
    Tidy report out for first half. Some capex to work through for future growth, so hence encouraging holders to take up DRP for the new interim div (0.3cps). Some effect expected from increased fixed costs/capacity initially underutilised but I am working on $1.7m NPAT. I have value to 28-31cps (currently 25.5cps).... notes to convert at 15cps this half should keep the sell side topped up with over 1m shares to go. Enough to let new holders in, not enough to spoil the trade.
    Thank you Lizard.I brought some this afternoon at 24.5cents.

  15. #15
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    I have sold half my holding into the recent run as have had a good return on my 12cps entry with capital gains and divs over the past 9 months.

    Cash always handy so I can find new shares for the collection. Happy to keep holding the rest.

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