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ALS share price higher on solid half year result

The ALS Ltd (ASX: ALQ) share price is pushing higher in morning trade after the release of a better than expected first half result.

At the time of writing the testing services company’s shares are up 2% to $8.21.

How did ALS perform in the first half?

During the first half of FY 2020, ALS reported revenue from continuing operations of $919.1 million and underlying net profit after tax from continuing operations of $98.2 million.

This was an 11.3% and 5.3% increase, respectively, on the prior corresponding period. The latter was higher than its guidance range of $90 million to $95 million.

Interestingly, it was also ahead of Goldman Sachs’ expectations. According to a note out of the investment bank, it was expecting a net profit after tax of $94 million.

What were the drivers of this result?

The company’s Life Sciences business was a key driver of growth during the half. It achieved revenue growth of 15.4% to $468.6 million and underlying EBIT growth of 20.9% to $74 million.

This was the result of strong organic growth across all regions and the initial contribution from the acquisition of ARJ. Excluding the Mexico-based pharmaceutical laboratory out of the equation, the Life Sciences business achieved organic revenue growth of 10.2%.

Supporting this growth was the Industrial business. It grew revenue by 23% and underlying EBIT by 27%. An increase in maintenance related revenue and contract wins in the USA chemical sector helped drive this strong result.

The Commodities business was the only weak spot during the half. It posted revenue of $319.9 million and underlying EBIT of $81.4 million. This was a 1.9% and 2.9% decline, respectively, on the prior corresponding period. Management advised that subdued equity funding for junior miners in the period impacted geochemistry demand.

Dividend.

The ALS board declared an interim dividend of 11.5 cents per share, partially franked to 30%.

This represents a 4.5% increase over the prior year and a payout ratio of 56.5% of underlying net profit after tax. This is within its target payout ratio range of 50% to 60%.

Outlook.

Management notes that the fundamentals of the business continue to be strong despite some impact from macroeconomic uncertainty.

It appears confident the Life Sciences business will continue its strong form and expects improvements from both the Commodities and Industrial businesses in the second half.

In light of this, and based on current market trends, it expects group underlying net profit after tax from continuing operations to be in the range of $185 million to $195 million in FY 2020. This compares to underlying net profit after tax from continuing operations of $181 million in FY 2019.

ALS isn’t the only company releasing its half year result today. Both Serko Ltd (ASX: SKO) and Volpara Health Technologies Ltd (ASX: VHT) have released their results and could be on the move this morning.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Serko Ltd and VOLPARA FPO NZ. The Motley Fool Australia has recommended Serko Ltd and VOLPARA FPO NZ. 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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