ALS shares (ASX: ALQ) were halted today, with the company requesting the action as part of a proposed equity raise. With the share price having gained 16.44% YTD leading into the halt, there are likely to be plenty of eyes on the market reaction. The company is also due to release its audited financial results for FY25.

At the end of last month, ALS issued a trading update addressing market concerns about potential tariff impacts. The company reassured investors that there is “no immediate and/or material impact on input costs as a direct result of the announced tariffs,” highlighting the flexibility of its global hub and spoke operating model to maintain service quality during uncertain market conditions. In this update, the company provided preliminary financial guidance, stating that based on unaudited management results, the company expects its underlying net profit after tax to be in the range of AUD $310-$313 million for FY25.

The trading update also revealed positive trends in the company’s Commodities division. Year-on-year sample volumes for the Minerals division have shown improvement, transitioning from a slight decline of approximately 0.5% in the first half of FY25 (six months to September 30, 2024) to a positive growth of approximately 2.5% by year-end. This turnaround suggests strengthening demand in the minerals testing segment.

From a modest market capitalization of AU$63.71 million in 1994, the company now boasts a market cap of AU$8.60 billion, translating to a compound annual growth rate of nearly 17%. This growth has been underpinned by its ability to adapt to evolving market conditions, diversify its service offerings, and maintain a strong global presence.

For the trailing twelve months, ALS reported revenues of AU$2.70 billion and earnings of AU$6.20 million. Gross margins remain robust at 29.81%, but the net profit margin is slim at just 0.23%. The high debt/equity ratio of 142.7% highlights the company’s aggressive leverage, a factor that both amplifies potential returns and introduces additional risk, particularly in periods of market stress.

 

Top Australian Brokers

 

With the broader Australian market expected to grow earnings at 11.8% annually, ALS’s projected earnings growth rate of 24.9% stands out. This growth premium has fueled recent share price momentum and optimism among market participants.

Whilst sentiment is broadly positive, the average price target of $17.02 is not keeping pace with recent price action. Looking to analysts, Goldman Sachs has expressed confidence in ALS’s prospects, forecasting potential returns exceeding 10%.

Despite the bullish outlook, investors should remain mindful of several risks. The company’s high leverage could become a headwind if interest rates rise or if cash flows fail to meet expectations. Additionally, the razor-thin net profit margin underscores the importance of operational efficiency and cost control, particularly in the face of global economic uncertainty. Equity raises also typically apply downwards pressure, due to the dilutive effects. For now, we await further clarification.