Earlier this week, rock sample processing company XRF Scientific released its results for H1 FY 2025. Revenue was flat, at $28.7 million and profit after tax was up 12% to $5 million. The reason the revenue is flat is because the price of XRF’s lithium products is automatically adjusted downwards when the cost of lithium, a key input, comes down.
This profit result amounts to 3.6 cents in earnings per share. Underlying free cash flow, which I calculate excluding acquisition payments (but including lease repayments) came in at $3.5 million, which is a good result.
However, after acquisition payments, dividend payments, and little bit of debt reduction, the net cash position diminished somewhat to a (still healthy) $6.9m. I would generally expect to see the cash pile increase in the absence of acquisition payments, but I do expect the board to deploy cash on acquisitions, from time to time.
As you can see below, Q2 was a record quarter in terms of profit before tax, and this record result is most likely the reason the XRF share price has moved up from $1.90 at the release of the results to $2.14 at the time of writing (a gain of 12%).
XRF Scientific Segment Performance
The star of the show in H1 FY 2025 was the consumables segment, in keeping with my long term thesis that this business is a good business.
The precious metals business did fairly well, with net profit before tax down slightly. The good thing about this business is that it benefits from regular orders from mining customers, since “increased sample testing requires regular recycling of spent platinum labware products.”
The ugly duckling this half was the star of the show last half, with the capital equipment profit coming in well below the exceptional result in H2 FY 2024, but in line with historical levels. The company says it has “numerous machines in advanced stages of product development, for release through the 2025 calendar year.”
XRF Share Price Valuation
One potentially flawed way to think about the likely result in the second half of FY 2025 would be to extrapolate the pattern of the March and June quarters coming in slightly below the traditionally strong December quarter. In that scenario, net profit before tax for FY 2025 might come in at $14.2m (implying $7.2m in the second half). Applying a 30% hypothetical tax rate, we get NPAT of just under $10m, putting the company on a FY 2025 P/E ratio of just over 30.
The company acquired 100% of Labfit on 13 December 2024 for upfront consideration of $1.16m, and I would hope that that would contribute a profit in the next half, and the example above ignores any potential Labfit impact (positive or negative). The report only said that “The integration is well advanced, with the business scheduled to move to our main capital equipment factory in Perth, during the March 2025 quarter.”
Overall, the XRF Scientific share price is not as attractive now as it has been in the past, but it is still a good company. As discussed previously, I remain skeptical about the value (if any) of downgrading a quality business that has been performing well just because its share price has moved up. So, although XRF Scientific is definitely more optimistically priced now, than before, I would still buy some shares if I did not already own shares.
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).
The information contained in this report is not intended as and shall not be understood or construed as personal financial product advice. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement. Nothing in this report should be understood as a solicitation or recommendation to buy or sell any financial products. A Rich Life does not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. Future results may materially vary from such opinions, forecasts, projections or forward looking statements. You should be aware that any references to past performance does not indicate or guarantee future performance.