XRF - XRF Scientific

I think if you are patient you will pick them up sub 20c again.

My cash flow did not allow me to pick up another parcel but I wish I had, the earnings came in right around where I thought they would this year but the cash flow certainly beat my expectations.

Keen to see them repeat this year but I think there will be headwinds. I think there's a bit of activity in the mining sector that is being kept under wraps. I also like the fact their European sales are growing at a steady pace, especially if they're picking up aerospace customers, I see that as a real growth sector there in the coming years and if they can pick up a slice of that I'm happy.

It was a rough ride down to the January lows earlier this year, but anyone holding would be feeling a lot happier at the moment that's for sure (DNH)

The question to be asked is this as good as it gets? Its such a tiny market, with such a long life for the hardware and XRF has a habit of having one good year every now and then.

I appreciate the skepticism as it means I need to think about it more compared to other opportunities available. My overarching theme for why I bought the company was because I wanted to be exposed to upside of material sciences in the coming years as I think material science has had and will continue to have a dramatic impact on our day to day lives, even if we don't notice day to day, hell even if people don't notice full stop.

I'm happy they sell a solid product to be honest. I appreciate that aspect as a consumer when I think about buying a car etc. & I'm sure businesses do when evaluating vendor decisions for equipment.

I'm also big on cash flows to me personally from business earnings and I notice only in FY2010 have dividends not been paid, I think that's a pretty decent track record given the market turmoil that went on.

My skepticism is borne of having worked for many years as a lab analyst using XRF and their competitors equipment and consumables. My comment is not specifically about XRF's hardware, fusion machines are very simple machines with long lives and its not like there is much of a growth market in processing plants coming online that need them. XRF have been optimistic about the potential in new markets like the cement industry, but from what I read fusion beads are not the preferred method with cement.

I don't think its a bad little business, but I don't see the sort of growth a few have predicted since it came to the attention of more investors this year.

galumay said:

My skepticism is borne of having worked for many years as a lab analyst using XRF and their competitors equipment and consumables. My comment is not specifically about XRF's hardware, fusion machines are very simple machines with long lives and its not like there is much of a growth market in processing plants coming online that need them. XRF have been optimistic about the potential in new markets like the cement industry, but from what I read fusion beads are not the preferred method with cement.

I don't think its a bad little business, but I don't see the sort of growth a few have predicted since it came to the attention of more investors this year.

Click to expand...

Hi @galumay, I'm curious to hear more about this. Even at current prices, XRF doesn't seem too expensive, but I need to understand the market a lot more... my knowledge in this space in minimal.

If you could expand on this a little, that would be awesome. Specifically the usage of their hardware/fusion machines, and how much competition there was at the time you were using them?

(Sorry, I'm taking a shortcut here, but I'll need to go back at some point and learn everything anyway. Just checking if it's worth doing the legwork)

Thanks!

Sure Klogg, here is the content of an email from a discussion with another investor from earler in the year, hopefully it helps a bit, its informed by a discussion I had with a senior Chemist at a lab to check my view was still relevant. There are about 4 major manufacturers of Fusion machines, as an example we had one from each of two of the manufacturers in our Lab. As my Chemist mate noted, loyalty is mainly along geographic lines, so XRF are never going to sell many fusion machines in the Middle East or Americas.

"My mate says the 80% market share for Australia sounds about right, he is less sure that it would be as high as that globally. Edge is geographic, Australian mines and refiners bought XRF Scientific because of local support and supply. One fusion machine is much the same as another, I have used several different ones over the years, they are all good when they work well, they are pieces of **** when they play up! (Pouring molten ore and flux into the gas burners and blocking all the orifices is one favourite trick. The Lab trainee gets the job of cleaning them!)

He says Labs usually use platinum ware from same supplier, consumables more likely just from whatever bulk chemicals supplier they use, so could be anyone.

I dont know about the non-mining, customisable labware, I imagine its a tiny market, probably already serviced by someone, tough to break into I would have thought with not much growth potential. But thats just gut feeling. As an example I see they are doing a product for milk producers, well they will already be using someone else's labware at this point, its not stuff that wears out or breaks easily, so why would you buy from XRF?

My questions to your dot points would be,

The expansion, new products, new offices may well move margins upwards somewhat, but were they ever good enough to make it a great business?

I would be careful extrapolating growth in machine sales to platinum ware and consumables, any replacement of old machines wont have that effect. Is it just a short term growth in machine sales, given the life of them and how few new mines or refineries come on line, this could be an unsustainable spike in revenue.

I think the low multiple reflects a basket of stuff, lumpy earnings, not much growth over the years, unpopular sector, small, unnoticed business, I suspect it would have to be able to have more than just one good set of numbers to move the dial much!

Ok, so thats a really negative response to your summary, but I suspect thats what you are looking for.

On the other side of the coin, I have a really quick and dirty set of metrics that i put a company through before I do any sort of deeper research, I end up with a FCF that I then use to feed into a ROIC or (CROIC as some call it). On that basis it sneaks in with an assumed ROIC for the full year in the range of 6%. From there I need to convince myself its going to improve over time from that lowpoint, and that there are reasons to have a level of conviction about earnings growth. I reckon I could work up a case for investment at current prices based on those very rubbery numbers, but so far I actually think there are more productive homes for the capital by adding to positions I already hold.

I have found that is one of the hardest biases to overcome, the thrill of becoming a part owner of a new business as opposed to the boring thing of just adding to an existing part ownership!

Another way I try to think about investments is probabilistically, and XRF looks ok from that perspective, I dont see much downside from here, the market has very low expectations as it is, so its likely that even flat sales and earnings would see the price stay much the same. If they can put a couple of halves of solid growth in revenue and have that flow right through to the cash flow then its certainly not hard to see maybe 50-100% upside over a couple of years.

Thanks again for entertaining my amateur thoughts on XRF and investing in general, I feel I have so much to learn and its a bit awe inspiring sometimes being in discussions with seasoned professionals like yourself - but its great to get a chance to articulate my thoughts to a critical audience!"

Klogg, this is also worth reading for the point of view that a small group of investors tend to collectively hold about XRF, they are mainly investors I respect so its been an interesting divergence of opinion!

https://www.livewiremarkets.com/wir...numbers-close-to-light-at-the-end-of-the-tube

galumay said:

Klogg, this is also worth reading for the point of view that a small group of investors tend to collectively hold about XRF, they are mainly investors I respect so its been an interesting divergence of opinion!

https://www.livewiremarkets.com/wir...numbers-close-to-light-at-the-end-of-the-tube

Click to expand...

Thanks a lot for all the input.

All the high quality investors piling in is half the reason I looked at it. I just don't know enough about the industry, so the learning curve is too steep for me. I'm playing in a whole new world, one where I don't feel comfortable, so I left it.

Nevertheless, thanks again for the posts. They were very informative!

I picked this for the February tipping competition as I believe they're going to post a solid half year result in late Feb.

First quarter update during the AGM was good bar the capital equipment division which as galumay has pointed out can be lumpy depending on where we are in the capex cycle, other divisions posting solid growth.

A large holder has been selling their holding for a while now which I think is also keeping a lid on the price.

Good half year as expected.
Massive trading action(compared to prior years) happening today as a result of the good news is my impression.

Digging into the numbers further, Australian sales didn't match prior periods but Canada(+26%) & Europe(+40%) more than made up the difference. Massive improvement on NPAT however. I imagine Skye Alba(large holder previously mentioned) is happy to be exiting on this news.

XRF Acquires 50% of Orbis Mining

XRF Scientific Ltd (“XRF” or “The Company”) is pleased to advise that it has entered into a binding but
conditional Share Purchase Agreement ("Agreement") to acquire 50% of the shares in Orbis Mining Pty Ltd
("Orbis") from Brad Hunting and Darrin Hunting ("Founders"). XRF has further acquired a Call Option to
purchase the remaining 50% of the shares currently held by the Founders.
The Agreement is conditional on the satisfaction or waiver by 31 October 2021 (or such other date which is
agreed) of various conditions precedent. Material conditions precedent include the Company being
satisfied with its due diligence enquiries in relation to Orbis, there being no material adverse change in
relation to Orbis, various third‐party approvals being obtained and the Founders entering into employment
agreements with Orbis.
Orbis is a manufacturer of laboratory jaw crushers, primarily used in the mining sector. The business was
founded in 2014 by Brad Hunting and Darrin Hunting and is currently based in Mandurah, Western
Australia. It is one of two known companies in the world to produce a highly efficient double acting jaw
crusher. Orbis utilises a unique and patented component that allows for samples sizes of up to 110mm to
be crushed down to 2mm in a single pass, which allows most users to avoid multiple processing steps.
Read more about Orbis at: https://www.orbismining.com/
For FY21 Orbis produced unaudited revenue of $2.3m and profit before tax of $0.34m. The business
currently has a blue‐chip customer base of commercial laboratories and miners.
Key Acquisition Benefits
 A low risk, bolt‐on acquisition with highly complementary products: the majority of our existing
customers require jaw crushers
 Given current sales opportunities at hand, Orbis’s revenue and profits have the potential to grow
rapidly in the short to medium term
 Orbis has addressable markets significantly larger than XRF’s own existing capital equipment
products
 Further diversification of revenue into the gold mining sector: Orbis’s products are used in gold
assaying processes such as Fire Assay and Photon Assay
Acquisition Price of first 50% shareholding
 $600,000 in cash and $200,000 in XRF shares. The cash consideration will be funded from XRF's
cash reserves. The XRF shares will be issued at the 10‐day VWAP prior to settlement and will be
issued using XRF's available placement capacity under ASX Listing Rule 7.1.
 XRF will make a $500,000 working capital loan into Orbis.
2
 The acquisition is subject to the conditions precedent mentioned above and provided all conditions
are satisfied, the sale is expected to settle by 30 September 2021.
 XRF will appoint two directors to the Board of Orbis, with the remaining directors of the board of
Orbis comprising the Founders.
Call Option to acquire the remaining 50% shareholding in Orbis and Earnout
See attached schedule for key terms.

courtesy of Bell Direct
===========================================================================================

DYOR

i hold XRF currently up 140%

Not sure about value of the acquisition, jaw crushers are basically ever lasting pieces of equipment. I cant remember ever seeing one replaced in a Lab. Pretty well reliant on new Labs for any sales. I guess its only a small business so not much risk.

only buying 50% ( so far ) using shares plus cash

so i guess it depends on where in the mining cycle you think we are

i think this is an unusual high ( out-of-cycle ) with the proper peak , built of demand coming in about 3 years , if the global economy doesn't implode first

so the question is , will the can keep getting kicked down the road , filling the market with false confidence

XRF announces record full-year result
XRF Scientific Ltd (“XRF” or “The Company”) today announced its results for the June 2022 full year:
Key Highlights
• Sales Revenue up 28% to $40.0m from $31.3m
• Net Profit After Tax up 19% to $6.1m from $5.1m
• Adjusted Profit Before Tax* up 38% to $8.2m from $5.9m
• Final fully franked dividend of 2.5 cents per share
*Adjusted Profit Before Tax is after adding back/deducting items related to COVID-19 in FY21, which were
nil for FY22. A full break-down of these items is available in the Annual Report.
XRF’s Managing Director, Vance Stazzonelli, commented on the full-year result:
“FY22 was a very strong year with a record profit before tax of $8.2m being generated. All divisions
contributed towards the result, with a high level of activity occurring in the mining sector and growth in
international sales. We continued to diversify our revenue base and increase non-mining revenue,
including growth of our Precious Metals division’s industrial platinum products.
The Consumables division had an excellent year, generating a profit before tax of $4.1m from high levels of
activity in the mining sector. Lithium chemicals are a key production input and have been increasing in
price due to demand from the EV sector. As a result, revenue and costs are expected to continue to rise in
FY23, with no negative impact to margins.
The Capital Equipment division delivered a profit before tax of $1.1m from revenue of $10.8m. Demand for
capital equipment was robust during the year, with customers acquiring new machines across mining and
industrial sectors such as cement and steel manufacturing. Our order book continues to reach new record
levels, with production for some product lines booked out for 1H23.
Our 50% acquisition of Orbis Mining Pty Ltd has been fully consolidated into our accounts and is now part
of the Capital Equipment division. The business performed well and generated revenue of $1.8m during
the June half. The new product line has good forward sales momentum, and we expect to see significant
growth in revenue during FY23. Many sales are occurring within the gold industry, to support the crushing
of samples for photon assay and fire assay.
The Precious Metals division delivered revenue of $18.3m and a profit before tax of $2.8m. We continued
to grow our base of industrial product customers in Europe, the majority of which are expected to generate
reoccurring revenue. The division acquired new customers in specialised fields, including platinum
products to produce medical glass and crystal growth.
Page 2 of 2
We are continuing to see goods levels of reoccurring orders from mining customers, as increased sample
testing requires regular recycling of spent platinum labware products.”
Dividend
The Board has declared a final fully franked dividend of 2.5 cents per share which is up by 25% on last year.
This represents a payout ratio of 56% of net profit after tax. The dividend reinvestment plan (DRP) is
available for shareholders by registering participation at the share registry, Automic Group. A 2.5%
discount will be applicable to the DRP.
Please direct any inquiries to:
Vance Stazzonelli
Managing Director
vance.stazzonelli@xrfscientific.com
+61 8 9244 0600


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DYOR

i hold XRF ( currently up 177% on this )

Never understood this one, used XRF products and machines for decades in Labs, the machines last forever, no one ever buys a new one! The consumables have no pricing power and plenty of competition. I first started talking about XRF with other investors and fund managers years ago when they were round 15c, told them all there was no real structural growth possible in this business. One I somehow got entirely, 100% wrong despite having deep inside understanding and info on the business. Spoke to senior chemists in various labs I knew to confirm my views, they all agreed, no potential!!

Anyway, I got it wrong, significant opportunity cost to me, although i did very well out of the things I did allocate the capital to. Well done to those who saw the potential and backed their judgement!

XRF Scientific (ASX: XRF) – profitable but under the radar​

sorry a little bit dated but was buying another bull ( the bovine variety ) when this was published


DYOR

i hold XRF ( currently up 400% on this )

i got lucky on this one was looking for a niche tech company that was making a profit ( and paying a div. )

$160M market cap.
.

Amazing run! As I have said, it made no sense to me, I had deep inside experience and knowledge and I could not see the potential. Just shows there are lots of ways to be wrong in the investing business!

I guess the thing I try to remind myself of is that sins of omission are much less of a threat than sins of commission, meaning that missing out and my analysis and research turning out to be 100% wrong in this case is much better than when I have committed capital to buying a business where it turned out my analysis and research were 100% wrong!