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Date : 12/12/2022

XRF Scientific



Market Cap : $109 Million

Dividend Per Share : $0.025

Dividend Yield : 3.12 %


52 Week Range : $0.510 - $0.840

Share Price : $0.80

Solid earnings growth maintained during the quarter. Directors buying more shares. These factors could indicate that XRF’s potential might have reached an inflexion point. We retain our long-term “buy” recommendation.

Company Analysis

Despite being a small cap with a market capitalisation of only $109 million, XRF Scientific (ASX: XRF) exhibits all the qualities you can find in a high quality business. The Company offers a lucrative dividend yield of 3.12% and has demonstrated a solid capability to deliver dividend growth. Moreover, XRF has proved to be highly competent in improving its earnings year-on-year at a steady CAGR of 41.85% in the last three years. Since FY19, the Company has expanded its revenue from $29 million to about $40 million for FY22. Operating in a challenging environment since 2020, this is quite a feat.

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Source: Tradingview

Since our last buy recommendation on August 24, at 69 cents apiece, XRF share prices have appreciated by almost 16% to 80 cents, and since we began coverage of XRF in May 2021, we have seen it double in value, going from 39.5 cents to 80 cents at the time of writing.

They operate effectively with a differentiated offering in a niche market. We continue to like the stock, and we think XRF has the potential to grow tremendously in the long term.

If you’re new at Shares in Value and looking for a quick recap, XRF Scientific is a manufacturer of equipment and chemicals. The Company then distributes it to production mines, construction material companies and commercial analytical laboratories in Australia and overseas. You can read more about it in our earlier coverage by clicking here.

A key characteristic we like that makes XRF’s business robust is that the Company is well-established with leading blue chips (BHP, Rio Tinto, Vale, South 32, Glencore, Alcoa, etc) as clientele in various industries in Australia and internationally.

Company Updates

Solid earnings growth for the September Quarter: Revenue up 32%, and Net Profit Before Tax up 45% on PCP

XRF has reported a particularly strong September quarter. The Company has achieved exceptional business performance during the period across all its divisions. The quarter’s solid performance was driven by increased activities in the mining sector, which led to strong demand for capital equipment products.

September quarter highlights:

  • Industry activity: Strong results were driven by activity in the mining sector and upbeat demand for capital equipment products.
  • Consumable business segment sales: Consumables sales $of 3.8 million for the first quarter of FY23 (Q1-FY22: $2.6 million)
  • Strong demand for XRF consumable products: Solid consumable products tailwind from mining production and exploration sample analysis strong demand.
  • Introduction of a new consumable product: XRF has released a new consumable product, the XR-tab, for pressed pellets sample preparation.
  • Precious Metals, labware: XRF realised sales of $4.7 million for the first quarter of FY23, vs $4.5 million in Q1-FY22.
  • Precious Metals, labware orders: XRF has reported a high level of platinum labware remanufacturing orders and new product sales related to new machine purchases.
  • Capital equipment business segment: Capital equipment sales of $4 million during the first quarter of FY23 vs Q1-FY22 of $2.5 million.
  • Capital equipment order book: Production order book of up to six months for the Company’s main product lines.
  • Capital equipment achieved improved revenue of $1.5 million for the first quarter of FY23. The strong revenue was driven by Orbis Mining lab crushers’ product line.

Capital equipment revenue is up 60% on PCP to $4 million

XRF’s capital equipment business segment has been the strongest sales growth during the period. Thus, the Company has realised a revenue of $4 million, which is 60% better on PCP, compared to $2.5 million in September 2021.

Consumable product sales increased by 46% on PCP to $3.8 million

Consumable sales have also been very positive during the quarter, with $3.8 million, much better on PCP. The sales of consumables were improved by more than 46% to $3.8 million from $2.6 million in September last year. Consumable products offered by XRF continue to experience solid sales growth as Mining production and exploration sample analysis keep generating strong demand for sample preparation products.

Precious metals and labware sales slightly increased during the quarter, up 4.44% on PCP to $4.5 million

XRF has reported $4.7 million in sales realised from its precious metals and labware business. That was a marginal increase of 4.44% from the $4.5 million realised in the September quarter of last year. The Company continues to experience steady demand from laboratories for its labware recycling because of higher sample testing rates. During the period, we have also been pleased by XRF’s new metal sales, which have strengthened. The Company sees more platinum labware product orders from its customers as a result of recent new machines acquisition.

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Source: XRF, Shares In Value

High lithium production materials may impact XRF’s inventory working capital, although XRF’s balance sheet remains well-positioned

In its latest annual report, XRF mentioned that it might be a bit concerned about the elevated price of lithium production materials, which could impact the Company’s inventory working capital by up to $2.8 million during the first half of FY23. XRF has taken action to mitigate the risk with an extra buffer on its working capital. Thus, the Company have recently increased its limit on a short-term inventory financing facility from $1.5 million to $3.5 million, of which one-million-dollar is currently in use.

For the fiscal year 2022, XRF has reported a solid cash position of $6.6 million compared to FY21’s $5.3 million. This reflects the Company’s strong balance sheet, which allowed the payment of its final dividend of 2.5 cents per share on the 14th of October, an annual yield of 3.12%. XRF continues to maintain a robust balance sheet, given its total assets of $55.5 million and low level of debt of only $12.2 million, as reported at the end of FY22.

XRF is rolling out XR-tab, a new consumable product that is rapidly gaining traction

During the quarter, XRF launched a new consumable product named XR-tab, which are tablets of binding agents for preparing samples as pressed pellets. It is a very interesting product as it allows laboratories to easily handle the agent. Thus, in the form of tablets, XR-tab can be easily processed, such as in the cement sector, where automated laboratories can be used for production quality control. XR-tab is a particularly useful product. Hence, many of XRF’s customers prepare their samples as pressed pellets and fused glass discs, with the latter being used when a higher degree of analysis accuracy is required.

XRF’s products are gaining popularity, mostly from its customers in the mining commodities and industrial materials sector. The Company’s order book remains at record levels and currently extends up to six months for the main product lines. To address the surge in demand, XRF strives to ramp up its production output accordingly.

Source: XRF

The first quarter of FY23 has been particularly intense. XRF has been focused on new product developments, which are progressing swiftly, despite facing a few challenges, such as limited available labour resources due to full allocation into product manufacturing.

The Orbis Mining acquisition started to generate its first steady revenue

XRF’s 50% acquisition of Orbis Mining has been fully consolidated into the Company’s accounts and is now part of the Capital Equipment division. The investment has already paid off, with the business performing well, generating a revenue of $1.8 million during the second half of FY22. Furthermore, the introduction of the new product line has shown good sales momentum from this acquisition, and we have already started to see solid income realised during the September quarter. Many sales are occurring within the gold industry to support the crushing of samples for photon and fire assay. Sales of Orbis laboratory crushers continue to grow, and the product line achieved revenue of $1.5 million during the quarter. We are confident that the sales momentum for Orbis crushers will accelerate and be one of the key growth drivers for XRF onwards FY23.

Overall, the first quarter has been a good start for this fiscal year, and we expect the December quarter to be another positive one for the Company, with a robust order book at record levels. We also expect an increase in activity levels in the mining industry, which we believe will support XRF’s sales growth throughout FY23. Moreover, the Company is also developing and introducing new products, likely contributing to revenue growth in the forthcoming years.

Investment Thesis

1. Well-balanced and diversified revenue streams

In our previous report, we highlighted XRF’s ambition to continue diversifying its business, and the September quarter has demonstrated the Company’s solid execution towards this objective. Overall, we have seen strong revenue growth during the quarter in which all XRF’s business divisions contributed to a 45% rise in profit before tax. But most importantly, we like that the realised income was well-balanced across the Company’s business segments, with the precious metals and labware division contributing to 37.6% of the Company’s revenue, driven by a high activity level in the mining sector and growth in international sales. In the precious metals division, XRF is also diversifying its revenue base and increasing its exposure to non-mining revenue.

The capital equipment business is the second-largest income contributor to the Company, with 32% of the total revenue. The business segment also realised the most aggressive growth on PCP, with revenue increasing by 60% in the quarter. This was largely supported by the 50% acquisition of Orbis Mining, which allowed XRF to generate additional revenue of $1.5 million during the quarter.

Consumable sales contributed more than 30% of XRF’s total revenue during the quarter. This business segment has also tremendously expanded, with its sales up more than 46% on PCP.

What we like about XRF is that each of its three business segments equally contributes a third of the Company’s revenue. This makes the business well-balanced and reduces concentrated risk to any particular product line.

2. Well-positioned for further growth

XRF’s consumables division substantially contributed to FY22’s strong earnings, generating a profit before tax of $4.1 million from revenue of $12.1 million. The consumables sales continued to experience strong momentum into the first quarter of FY23, which led to $3.8 million in sales. We expect consumables sales to continue to grow further on the back of the mining sector, which exhibits a healthy level of activity onward FY23, with long wait times for sample results being reported by laboratories. We believe the profit increase throughout FY23 will likely be due to higher production volumes and additional margin earned on previously ordered low-cost raw materials that were part of XRF’s large inventory position.

XRF is also developing new consumable products, such as the XR-tab launched during the quarter, which could bring revenue growth to the next level.

David Brown, a Board member and a Non-executive Director, is the second largest shareholder at XRF and retains a 7.31% ownership. Individual insiders still retain a large portion of ownership in the Company and account for 23.7% of shares held. We have also witnessed increased shareholding activities in the last six to nine months, with most notably, Directors Vance Stazzonelli and David Brown buying more shares. Between June and October, David Brown topped up 90,798 shares, whilst Vance Stazzonelli added 13,484 shares. Directors purchased XRF shares at an average price of 67.4 cents, ranging from 54 to 83 cents.

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Along with innovation and new product development, XRF has made periodic acquisitions with well-defined objectives to expand the Company’s geographic footprint and product line. This strategy has proved to be extremely successful for XRF.

The acquisitions of Socachim in 2015 and Scancia in 2017 provided XRF with an established customer base and distribution channels to work through and leverage. At that time, Socachim was one of the big distributors of XRF products in the European Union. The acquisition of Socachim was an excellent move to penetrate the European market and allows XRF to own this Company’s channels and networks. XRF has effectively leveraged this purchase, diversified the business and accelerated sales growth across its product line. These investments have clearly paid off.

The latest acquisition to date is the 50% stake purchased in Orbis Mining in October last year. The business performed well and generated revenue of $1.8 million and profit before tax of $125k during the second half of FY22.

The investment in Orbis Mining also starts to bear its fruit. Orbis contributed to the revenue of $1.5 million during the quarter, and the sales of Orbis laboratory crushers continue to exhibit growth. We are confident that the sales momentum for Orbis crushers will accelerate and be one of the key growth drivers for XRF in the forthcoming years.

XRF exhibits a solid balance sheet to support further growth

The Company has a great level of cash and equivalents, and more importantly, XRF’s short-term assets of $28.9 million exceed its short-term debt of $9.7 million. What we also like about XRF is its low level of long-term debt, which is accounted for only $2.6 million. It is worth noting that the Company has more cash available than its total debt. Thus, its debt is well covered by its operating cash flow, and its EBIT can cover 121 times the Company’s total interest payments. XRF reports a debt-to-equity ratio of only 12.5%.

3. A fantastic recurring revenue business model

XRF is still a relatively small business. However, the Company has more than three decades of existence and is quite mature. The business has evolved into a product supplier critical to large mining companies. XRF products are testing kits crucial for miners to test their core samples. Testing kits are essentially consumables.

Hence, they provide recurring revenues, a trait we like about XRF. To secure its recurring revenue, XRF has an interesting business model: to sell its machines to mining companies, which would need the consumables part to conduct those tests. In recent years, XRF has developed that technology quite nicely. XRF has sold many of these machines to miners, and consumables are the fastest-growing part of the business. Consumable products are very interesting as it is high margins sales. During this September quarter, XRF has seen this product line grow by 46%, and we expect that momentum to continue. Overall, XRF has a quality business model, and we expect the Company to stay on track with its earnings growth.


XRF’s earnings have taken off quite impressively. Earnings year-on-year improved at a CAGR of 41.85% since FY19. More recently, as reported in the September quarter, XRF has achieved another earnings growth, with profit before tax growing by 45% to $2.4 million. It has become clear that XRF shares could continue to rise as solid operational performance meets financial success. Insiders topping up holdings has also increased in the last six months. We retain our long-term “Buy” recommendation.


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