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LBL

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galumay:
Considering opening a position in LBL - Laser Bond Limited.

LBL is a very small business based in SA who specialise in hardened surfaces for high wear applications. They service agriculture, oil & gas, mining, drilling, boring, - basically any 'tool' or machinery part subject to high wear from errosion, corrosion or impact. They have a strong R&D program tied in with a university as well as larger clients. Its a profitable little business, very tightly held registry with about 70% held by founder family & director interests so its quite illiquid.

The growth potential with the business is their growing international sales and more especially a new technology services division. In this sector of the business they sell a Laser Bond facility to a foreign customer, they build, install & train then there is a 5 year service agreement for revnue based recurring income. This has potential to be a significant source of income for the business if they can successfully build on the first few clients in the division.

Management seem very focussed and 'no nonsense", typical of founder/owners IMO, the reports and announcements are refreshingly frank and with few of the bullshit bingo words and motherhood statements common in ARs.

Based on my calculation of range of IV i have them at around 30c fair value, based on the 2017 Annual report, they currently trade at 17c - after a run up from 13-14c caused by the announcement of another Technology licencing contract and a positive update on revenue for the full FY.

It should be noted that profit was significantly impacted by the first Tech services contract - it added about $1.4m to revenue and this will not appear in the 17/18 FY, but as the update of revenue for the FY noted, growth in revenue in the other divisions have more than offset this. Also the announcement of the new contract means that revenue will again be increased by this division in 2018/19 FY

The business has little debt, 25 year history of profitable operation other than a blip in 2013 when they made a loss as a result of closing their unsuccessful Qld operation, and a niche market with strong IP.

The downside is that its a very small business, with illiquid registry and the value I see may remain locked up and not apparent in the price for a long time. The risk appears assymetric to me, its quite possible that continued expansion into the international business and growth of the licensing model would see increased profits, dividends and eventually share price. On the other hand if they dont get any real traction with the international push, and the licensing model flops, then the business should be valued on its 2017 numbers anyway - which still makes the current price look cheap.

Its an easy to understand business, it has some competitive advantage with IP and niche marketing. Margins should be fairly easy to maintain as incremental price changes in the product will be easily absorbed by customers and outweighed by the overall cost benefit of the proprietry process of protection for wear surfaces.

Competitors in the industry are Hardchrome Engineering, Laser Cladding Services Australia, and Dura Metal,part of Axalta group a large USA based international coatings specialist. The first couple are small private businesses, I suspect they would only service within their own state. Dura Metal is part of a much bigger international business, but I dont really see them as a direct competitor, they are more selling complete laser cladding machines for manufacturers who want to clad in house. (although that is a potential market for LBL as well>0

Now is the time to take a position, because LBL will release results for this year in August and I expect there will be a further positive reaction.

LBL, Laser Bond Limited, bought an initial position at 16.5c on the 6/9/18. My thoughts on the business are in the decision journal, I added more at 16.5c buying on a dip.

Increased my position size with another parcel at 30c which brought my average price to 20c.

H1 19 results very strong as expected, with significant revenue stream due from tech division next half.

click here to view

Why will this business be around in 10 years? - Its such a specialised business with high barriers to entry, been around for 30years.

galumay:
recent analysis, october 2019

https://www.taylorcollison.com.au/wp-content/uploads/2019/10/Laserbond-AGM-update-191014.pdf

galumay:
HY report disappointed the market as growth slowed, I think that the business was being over valued  and the drop in price reflects this. I am still very happy to hold and its still a very profitable position for me. ANother business where patience is required to see the transformation out and the growth of the tech and services divisions.

galumay:
FY20 results very satisfactory given the disruption of Covid this year, continue to hold and expect to see meaningful growth over the next 2 years.

galumay:
H1 2021 ditto really, still aiming for $40m revenue in 2022.

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