Yesterday, ALS (ASX: ALQ) reported strong results from an industry that may soon be parched for profits.
The company (formally known as Campbell Brothers) reported NPAT up 2.2% to $227.3 million for the year to March 2013. The results are a relief for the company, especially as it sits in an industry that has been dealt the biggest blow from the most recent wave of investor expectations.
Finance group Nomura has recently cut the target price to $10.40 per share and said the company remains a buy. In the past week, ALS has rallied over 10% and some analysts expect the share price to rise because although it sits in a tough industry, it provides specialist services.
All divisions within its technical services business generated higher levels of revenue than the previous year. Approximately 42.1% of revenue for the company comes from its ALS minerals division, and despite the recent withdrawal of resources investment, along with ALS Life Sciences, it only had a minor effect on margins.
The final dividend is to be paid at 48 cents for the year, upping the companies 5.1% yield.
Although ALS's specialist services will see it survive the irrational volatility of the market, there is no doubt the company will be subject to negative investor sentiment surrounding the mining services industry. As the mining boom enters a period of contraction, management will have to do more than cut costs to help protect its precious profit.
Foolish takeaway
ALS is more diversified than other mining services companies like Ausdrill (ASX: ASL) and Monadelphous Group (ASX: MND), whose share prices have fallen 62% and 42% in the past four months respectively. ALS has said it will focus its attention on the laboratory services division where it has shown competitive advantage and a proven business model. The company hopes to open more laboratories in Europe, Asia and North America. Keep an eye on this stock, as further volatility in the market may push its share price down unreasonably.
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Motley Fool contributor Owen Raszkiewicz does have any financial interest in the mentioned companies.
