Each week, I’ll be picking a random small-to-mid-cap ASX stock that I have rarely seen discussed online (personally, yes I’m aware it may have been discussed at some point in history) – and that I do NOT hold at time of writing – to cover at a glance.
We’ll have a look at what it does, some of their financials, and conduct some polling on general sentiment. The main purpose being to add some more variety in coverage to the standard blue chips or meme stocks we see pumped day in and day out, and hopefully discover some hidden gems or innovative companies on the Aussie market.
Here’s this week’s Random Stock of the Week.
Company name: XRF Scientific
Ticker: XRF
Industry: Industrials/Technology
Headquarters: Perth
Market cap: $79m
Current share price: $0.59
P/E ratio: 15.5
1-year Performance: +87.3%
What they do, smoothbrain version: provide glow in the dark liquid to speccy miners to help see whether the hole they’re standing next to is worthless or not
What they say they do, wanky version: “XRF’s products help customers to improve product quality and performance, increase productivity and yield and reduce downtime and waste.” 🍆👋
What they do, actual version: Ever heard the ‘during a gold rush, sell shovels’ analogy?
This company provides a potential alternative for mining industry exposure without needing to invest in dodgy miners whose shitty mines may not actually be worth a damn.
XRF is a Perth-based business whose key focus is on a mix of chemicals, equipment and processes used to assess the quality of mineral samples provided (mostly) by mining companies.
Their tech is actually quite cool, in which a miner provides them a sample drilled from their mine, which XRF then take and harden into a mould in the shape of a glass disc, then use their machine called a “spectrometer” to analyse its contents.
That at least sounds smart, so bonus points there. They also sell proprietary equipment that carries out these processes to clients themselves.
They’re Aussie-based, but have a mix of offices and distributors across most of the world, and their business seems to scale well hand in hand with the mining industry in general. This is due to not only the consumable/chemical side of their business growing, but an increase in sales of their physical analytical machines as well.
Growth has come from a blend or organic growth, an increase in value of the physical metals they hold, and a recent play to acquire half of Orbis Mining, who provide crushing amenities for the mining sector that provide obvious synergy with their current product and service offering for sample analysis.
What looks good:
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Experienced management team with a decent amount of insider buying and hardly any insider selling; their management own nearly 30% of the SOI shows faith in the company
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Minimal amount of debt, and very healthy financially both P/B and cashflow wise for a smallcap company
- Their most recent results for 2021 showed an increase of 64% increase on NPAT (Net Profit After Tax) – very nice
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P/E of 15-ish is quite strong for a profitable and growing smallcap as well, although this has become less undervalued due to recent share price runs
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The debt they do have was mostly used to buy around half a million $ worth of physical platinum metal, which added to their existing stockpile of metals such as rhodium which continue to increase in value; quite a rare thing for a company like this to have a decent chunk of assets which passively gain rather than decrease in value
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Earnings after tax from their most recent report up 47% on the same period the previous year
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Profitability has trended up consistently every year for the past 4 years
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They pay a mild dividend for a company so small – around 3% yield – while still increasing profits decently YOY
What doesn’t look good:
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They were a beneficiary of “government subsidies” (likely JobKeeper) during the initial Covid period which accounted for about an extra $700k of their revenue and slightly warped their profitability numbers
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While their profits tend to steadily go up year on year, they never really “rocket”, implying this will never be a “bagger” in the foreseeable future unless something drastic changes
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Whenever I see a smallcap paying a dividend, I always wonder “why”? Reinvest that coin in more growth, boyos.
Summary: I, personally, am intrigued enough by this company that – even though I don’t own it – it has been placed on my watch list. I like that it is mining-adjacent but not attached to any specific metal, so hopefully not as as subject to price fluctuations in individual commodities.
Their tech is quite innovative for an ASX company, and although the government payments are always a red flag, they still made enough extra profit YOY in the following reporting period to show decent continued growth & alleviate those concerns.
They remind me of a potential mini-version of one of my favourite larger cap stocks, Codan (CDA), which had done very well for me for the duration I held it a couple of years back. This is largely due to the same concept of servicing the mining industry without actually mining themselves and being tied down too much to the price of a single commodity.
If you’re bullish on the mining sector in general, but not wanting to commit to an single metal, it could be an interesting way to hedge your bets assuming you have faith in their future growth.
I would consider investing into these guys as I find their mix of technology & science intriguing, but I don’t need ‘multi-baggers’ to be happy.
MarketIndex page: https://www.marketindex.com.au/asx/xrf
Feel free to add your own thoughts/DD in the comments below.
Would you buy this stock? Why or why not? Feel free to vote in the poll.
