Earlier this week XRF Scientific released its profit result for Q3 FY 2025. You can see the highlights below:
One of the reasons revenue fell 9% in Q3 FY 2025, relative to the prior corresponding period, is that when lithium falls in price, both consumables revenue and consumables costs of goods sold fall in tandem, as price changes are passed through to Flux customers.
However, the bigger reason was lower demand in Q3 compared to the prior corresponding period. The Precious metals division sales were down 12.5% to $4.9m from $5.6m in the prior corresponding period, although the commentary implied that margins improved. This quarter was also a weak one for Capital Equipment product sales, which were down 10% to $4.5m compared to $5.0m in the prior corresponding quarter.
On the subject of tariffs, the company noted that:
“In relation to global trade tensions, the US market accounts for around 10% of our revenue, spread across a large number of customers, in various industries. We note our key competitors for the US market are located in Canada and Europe, in particular for laboratory chemicals, fusion machines and platinum labware.”
As you can see below, this is the third consecutive year where the Q3 profit result has been a bit weaker than the Q2 result.
Part of the reason for this is probably the typically strong quarter-on-quarter growth in the December quarter each year. In the past few years the June quarter has been slightly stronger than the March quarter. However, if we assume that Q4 FY 2025 is the same as Q3 then the full year profit before tax for FY 2025 would be $13.7m. Assuming a tax rate of 30% that gives us NPAT of about a bit below $10.3m for FY 2025, which would be an increase in the vicinity of 10%.
At the current share price of just under $1.60, XRF Scientific has a market capitalisation of around $240m, putting it on a hypothetical FY 2025 P/E ratio of just under 23.5. If we assume it can grow at about 8% per year, XRF Scientific should be making about $13m profit by the end of FY 2028, at which point the P/E ratio would be around 18.5.
If the company can make any savvy bolt-on acquisitions, profit growth could easily exceed that target. Overall, I still like XRF Scientific shares because the company has an attractive razor + blade business model, has honest and competent management, and boasts a long-term history of profit growth. However, I acknowledge that with unpredictable tariff policy coming from the USA, it is possible that recessionary conditions could impact XRF Scientific negatively.
That said, my long-term investment thesis remains in place, and I recently added to my existing holding at $1.53 and $1.67. My position is pretty full-sized now, but if I didn’t own any XRF Scientific shares, I would happily buy some around $1.60.
As a special treat, Strawman.com founder Andrew Page said I could share this subscriber-only meeting he did with the CEO of XRF Scientific, quite recently (albeit prior to these Q3 results). I asked a few questions towards the end. Check out Strawman for Australia’s best stock forum discussion site.
Disclosure: The author of this article owns shares in XRF and will not trade XRF shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).
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