The Motley Fool

The ALS Ltd share price jumps on hopes of strong profit results in May

The ALS Ltd (ASX: ALQ) share price jumped higher today after Macquarie Group Ltd (ASX: MQG) stoked optimism that the laboratory testing company will deliver a profit at the top end of management guidance in two months.

The ALQ share price jumped 1.8% to $7.80 while the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index closed 0.6% higher on Thursday.

Despite its outperformance today, ALS needs to do lots of catching up as its shares are still down close to 13% over the past 6 months compared to a flat performance by the top 200 benchmark.

Earnings set to grow

But playing catch-up is what Macquarie expects ALS to do and the opportunity could come when management hands in its full year profit result on 21 May with its Life Sciences division showing good growth and hitting its margin target.

“LS [Life Sciences] saw strong sequential improvement in 1H and we expect solid 130bp 2H margin expansion on pcp [previous corresponding period],” said Macquarie.

“This equates to 60bp forecast lift in FY19 EBIT margins to 14.5% which is expected to be driven Al Control [acquisition] delivering to plan and restructuring benefits [and] improving end market demand in Canada, LatAm and Australia.”

The US government shutdown earlier this year could hurt its bottom line (the US government is a customer), but that’s probably not enough to dampen its results.

It’s Minerals division (it tests ores from exploratory drilling) is also expected to deliver good growth but will probably slow compared to the first half of FY19.

Macquarie has reiterated its “outperform” recommendation on the stock with a price target of $8.76 a share as the broker is forecasting ALS to post a full year net profit of $175 million compared to management’s guidance of $170 million to $175 million.

Foolish takeaway

But that’s not the only reason to like the stock. ALS provides good international exposure and is leveraged to buoyant mining activity.

The stock is also trading on a FY20 consensus price-earnings (P/E) multiple of 18.8 times, which I think is good value given its growth profile.

But this isn’t the only stock exposed to mining and infrastructure (two sectors that are well placed to grow). For that perspective, I also like construction engineering group Downer EDI Limited (ASX: DOW) and construction equipment company Seven Group Holdings Ltd (ASX: SVW).

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Motley Fool contributor Brendon Lau owns shares of Seven Group Holdings Limited. 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 Scott Phillips.

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