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Laserbond Not Just A Surface Attraction
BY JAMES DUNN - 17/09/2014 | VIEW MORE ARTICLES BY JAMES DUNN

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LBL - LASERBOND LIMITED


Laserbond’s surfacing technologies can greatly extend the useful life of wearing industrial components without the need for replacement. The company says it can extend machinery life by four to five times its original service life on average, at a fraction of the cost of purchasing new equipment.


Surface engineering company Laserbond Limited (LBL) is a unique animal on the Australian Securities Exchange (ASX). Laserbond’s core business is wear and tear: or to give it its scientific name, tribology.

Laserbond studies and develops ways to improve wear resistance, and applies this knowledge to processes that reduce wear and tear, and thus lower the total cost of owning and operating mechanical equipment in capital-intensive industries.

The company says the economic implications of wear are severe: it says that at least 1% of the Gross Domestic Product (GDP) of an industrialised country could be saved with minimal investment into the research and application of wear resistant materials.

How Laserbond fights wear and tear is by using advanced surface engineering techniques it has developed to manufacture and reclaim industrial components, often for highly specialised and critical applications that require surfaces to be as close to perfect as possible.

Laserbond says it can reclaim almost any industrial component, often improving its inherent properties. Alternatively it can make new components, using its surface-enhancing technologies where appropriate to dramatically increase the component’s service life. The company’s treatment extends the life of machine parts and assembly systems at far less cost than replacing the component would entail.

Most of the company’s work involves taking in fatigued and worn industrial parts and re-surfacing them to improve resistance to wear and corrosion, increasing reliability and service life. It also surface-engineers new components and replacement parts to extend their service life, in a wide range of challenging environments and applications.

Laserbond gets its business from a variety of industries, including mining, metal refining and smelting, power generation, road and rail transport, aerospace and gas turbines, shipping (merchant and defence), valves and fluid handling, and oilfield drilling and exploration.

The company began life in 1993, to bring to market a significant technological development in thermal spraying, known as high-pressure, high-velocity oxy fuel (HP HVOF). This breakthrough hugely increased the quality and performance of thermally sprayed coatings and thus greatly broadened the range of potential coating applications. By initially concentrating on these new applications and supporting their development with an in-house metallographic laboratory, the company – then known as HVOF Australia – quickly established itself as a technical leader in the thermal spray market.

In 2001, after significant research, Laserbond commissioned its proprietary laser cladding system, providing its customers with access to wear-resistant coatings and overlays with a full metallurgical bond. This technology enables Laserbond to apply precise layers of material, with minimal heat input, and no unfavourable metallurgical side effects.

Laserbond’s surfacing technologies can greatly extend the useful life of wearing industrial components without the need for replacement. The company says it can extend machinery life by four to five times its original service life on average, at a fraction of the cost of purchasing new equipment.

With high costs savaging the very industries that Laserbond serves, this represents a powerful argument for the company’s wares.

The company also contributes to energy efficiency. The steel industry estimates that around 30 gigajoules (GJ) of energy is required to produce one tonne of steel. A component originally manufactured from one tonne of steel can typically be reclaimed and placed back into service with only one GJ of energy consumed, dramatically reducing costs (and carbon emissions.)

Laserbond’s workshops are in Sydney and Adelaide, but if a customer’s equipment is too big to economically dismantle and transport, it will take its technology and operators to the customer’s site.

The company’s in-house laboratory conducts testing and examination, including metallographic characterisation, substrate metallurgy, hardness testing, and chemical analysis and failure analysis. Laserbond’s scanning electron microscope (SEM) allows for investigation of coatings and metallurgy down to the nano scale, as well as examination of micro-structures and surface topography at magnifications up to 200,000 times.

At present the mining industry accounts for almost 60% of revenue. While Laserbond concedes that mining investment activity has “plateaued,” it points out that the industry’s equipment base is still there, and needs to be maintained. In the meantime, it is working hard to open up more opportunities in the other areas it serves, based on industry’s increasing focus on the cost burden of maintenance and equipment downtime.

Laserbond reported a strong result for the year ended 30 June 2014, with revenue of $10.9 million – down 19% – but a net profit of $638,149, compared to a net loss of $4.3 million in FY13. Earnings per share (EPS) were 0.73 cents, compared to –5.1 cents in FY13.

On the basis of continuing operations, revenue was $9.7 million, up 3% on FY13, while net profit came in at $740,812, versus a loss of $3.5 million in FY13. Continuing operations generated EPS of 0.85 cents, compared to –4 cents in FY13.

A final fully franked dividend of 0.2 cents, paid from retained earnings, took the fully franked dividend for FY14 to 0.4 cents. Laserbond says it expects to continue paying dividends – but wholly from profits. The company has $2.6 million of cash on the balance sheet and very little debt.

Based on the protection and retention of existing clients, development of new business and improving margins, the company stated with its results that it expected to see continuing growth in profits in FY15, as shown during the second half of FY2014.

At a share price of 11.5 cents, LBL is trading on a historical price/earnings (P/E) ratio of 13.5 times earnings, and a dividend yield of 3.48%. Return on assets (ROA) is currently 11.9% and return on equity (ROE) is 17%. It is an interesting and attractive stock, doing good things, but the caveat is that Laserbond is a real “micro-cap” – its market capitalisation is just $10.05 million, and only $4,640 of the stock is traded daily. Any meaningful investment in LBL would take great patience to assemble. But that is the bind that a lot of micro-caps face – and patience can generate its own rewards.



View More Articles By James Dunn

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au



 

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