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Why the ALS Ltd share price has been crushed today

In morning trade the ALS Ltd (ASX: ALQ) share price has fallen 10% to $7.32 following the release of its first-half results after the market closed on Monday.

Here are a few highlights:

  • Revenue from continuing operations of $721.6 million, up 14.5% on the prior corresponding period.
  • Goodwill impairment charges of $63 million related to its Coal and Industrial units.
  • Half-year statutory net loss of $8.9 million.
  • Underlying half-year net profit after tax up 18% to $70.1 million, compared to guidance of $70 million to $75 million.
  • Underlying earnings per share of 13.9 cents.
  • Interim dividend of 8 cents per share partly franked.
  • $175 million on-market share buyback announced.
  • Outlook: Full-year underlying profit expected to be between $135 million and $145 million.

Although the company hit the low-end of its guidance, I believe many in the market were expecting a much stronger performance and full-year guidance from the testing services company. Especially given the premium its shares trade at.

The highlight of the half in my opinion was its Commodities business. It delivered an impressive 51.8% increase in underlying earnings before interest and tax to $55.7 million thanks to the recovery being experienced in mineral commodities markets.

Unfortunately the same cannot be said for its Life Sciences business. In recent years the segment has been the strongest performer, but competitive pressures in Europe and North America have put that run to an end.

While it delivered strong top line growth, these headwinds ultimately led to underlying segment EBIT increasing just 0.5% to $55.9 million.

Should you invest?

Whilst I am a big fan of the company, I do think that at 29x trailing earnings its shares are a little overpriced for its current growth profile even after today’s sharp decline.

In light of this, I wouldn’t be a buyer of its shares at this point and would suggest investors wait for a buying opportunity closer to 20x earnings.

In the meantime, investors might want to consider gaining exposure to the recovery in the commodities market through BHP Billiton Limited (ASX: BHP) or Rio Tinto Limited (ASX: RIO) instead.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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