ALS Limited (ALQ)

Growth Portfolio

Overview: ALS Ltd (“ALQ”, “the Company”) is an Australian commercial services company focused on testing and quality assurance. The Company undertakes food and pharmaceutical quality assurance; mining and mineral exploration; commodity certification; equipment maintenance, and asset care operations. It operates one of the world’s largest analytical and testing services businesses in more than 50 countries with over 300 locations. The Company was founded in 1863 and listed on the ASX in 1952. The Company was previously known as Campbell Brothers. It is a member of the ASX100 index.

Catalysts: Following last year’s divestment of its oil and gas services unit, ALQ’s financial position has been strengthening. Earnings are rebounding strongly whilst the Company has used surplus capital to undertake share buybacks and acquisitions in the less cyclical life sciences industries. Aiming to increase EBITDA by more than 70% by 2022, further earnings growth is the primary driver for ALQ.

Hurdles: Over a third of the Company’s revenue is driven by commodity industries where demand is subject to cyclical trends and has impacted financial performance in the past. The Company relies to a significant degree on acquisitions to drive growth and must restore confidence in its ability to deliver value-accretive deals following an unsuccessful foray into oil and gas during 2013 (since divested).

Investment View: ALQ offers profitable exposure to the mineral sampling and food testing industries. We are attracted to its strong market position, reputation, high barriers to entry, and growth targets. As its financial performance rebounds solidly from recent cyclical lows, the Company aims to increase EBITDA by over 70% by 2022. Further commodities industry cyclical weakness and integration risks associated with recent acquisitions are the principal risks. Whilst the stock trades at a premium valuation to the market, its high entry barriers, share buyback program, and growth trajectory, create a favourable balance of risks and we rate the stock a ‘buy’.