ALS launches $100m buyback

ALS Ltd (ASX: ALQ) was down -1.44% heading into lunch after the Industrial testing and monitoring systems business announced plans to buy back $100m worth of shares on-market over the next 12 months.

Funded by existing cash balances, the buyback – pegged to commence 9 August - represents 1.9% of the S&P/ASX100 company’s shares on issue, based on Friday’s closing share price of $11.14.

The dividend reinvestment plan (DRP) will be suspended in the meantime.

Efficient capital management

Management believes an on-market share buy-back program provides the most efficient and balanced capital management option within its capital management framework.

Commenting on today’s announcement, CEO Raj Naran noted:

“The buy-back program reflects our disciplined and efficient capital management program, the strong balance sheet and focus on returning excess capital to our shareholders."

Value-enhancing acquisitions

Naran reminded investors that the company’s balance sheet retains significant capacity for organic growth, including expansions previously announced for FY23, and a solid pipeline of opportunities.

The company will continue to evaluate all strategic growth opportunities as they arise, and is also focused on value-enhancing acquisitions, particularly in the food and pharmaceutical markets, targeting opportunities that fit with existing capabilities or attractive adjacent markets.

Recent activity

Late June ALS pitched an unsolicited, non-binding indicative offer to acquire 100% of its smallcap rival’s HRL Holdings (ASX: HRL) shares for 16 cents cash per share (CPS), which was virtually double (95.1%) the pre-offer closing price of 8.2 cents.

At the full year FY22 the company delivered underlying net profit (NPAT) of $264.2m, up 42% year-on-year and achieved the top end of previously upgraded market guidance.

FY22 also marks the end of the company’s most recent five-year strategic plan, delivering revenue growth of 73% and underlying earnings (EBIT) growth of 113%.

The company declared a final dividend of 17.0 cps, partially franked to 30%.

Consensus on ALS is Moderate Buy.

Based on Morningstar’s fair value of $9.48 the stock appears to be overvalued.

Based in the six brokers covering ALS (as reported on by FN Arena) the stock is trading with 23.4% upside to the target price of $13.56.

ALS share price: A 12 month snapshot.