ALS’ Transition Towards More Diversified Future

Australia | 10:30 AM

New research on ALS Ltd highlights the benefits of its hub & spoke model, along with rising testing from regulatory requirements and a recovery in mining exploration.

-ALS Ltd's hub & spoke model provides flexibility & scale
-PFAS regulation sparks testing demand
-Sales rising from new services and downstream activities
-Recent capital raise surprised and seen as 'opportunistic'

By Mark Woodruff

Leveraged to rising societal expectations for green environmental testing practices, ALS Ltd ((ALQ)) should benefit from rising regulatory requirements and greater scrutiny, according to broker Citi. The company operates in the global Testing, Inspection and Certification (TIC) space.

Citi's positive investment thesis, presented via new research coverage last week, is based on the company's expansive global footprint, seen providingboth operational flexibility and scale. These advantages are complemented by a diversified business model supporting earnings resilience across changing market conditions.

Over the last 16 months, the ALS Ltd share price has risen by just over 45% to yesterday's closing price of $17.38.

Bell Potter began coverage when shares were trading at $15.78 last December, noting the business offered "compelling value".

In this broker's view, ALS is well-placed to benefit from stricter enforcement of per- and polyfluoroalkyl substances (PFAS) remediation and monitoring programs.

PFAS are a group of synthetic chemicals used in products like non-stick cookware, firefighting foams, waterproof clothing, and food packaging. Remediation involves identifying, managing, and removing or neutralising these contaminants from the environment, and testing is a key growth market for the company's Life Sciences division.

Additionally, a recovery in global mining exploration testing volumes and increased Contract Research Organisation (CRO) activity in Europe further support Bell Potter's upbeat outlook for ALS.

Founded as Campbell Brothers in 1863, the company is headquartered in Brisbane and provides services across a wide array of industries including, but not limited to, resources, industrial, pharmaceutical, food, environment, and life sciences.

Two divisions

The Commodities division provides geochemistry, metallurgical, coal, oil and lubricants testing services for mining, energy, and industrial clients. These analytical services support resource exploration and production by ensuring quality and efficiency in extraction and processing.

As per Citi's report, ALS is achieving greater diversification as mining majors increasingly seek analytical methods with enhanced precision and granularity.This plays to the strengths of ALS's value-added service, High-Performance Methods (HPM), which commands higher margins than standard testing techniques.

While still in its early stages, ALS is also exploring expansion into downstream activities, which analysts believe will strengthen the company's resilience across the cycle via more robust and sustainable growth.

Already, Bell Potter points out sales from new services and downstream activities contributed 26% of interim Mineral revenue in FY25, up from 13% in FY18.

Offering environmental, food, pharmaceutical, and other analytical testing services, the Life Sciences division assists industry and government clients with public health, regulatory compliance, and product safety decisions.

This includes testing of water, soil, air, food quality assurance, and pharmaceutical R&D and quality testing.

Environmental, Food, and Pharmaceutical testing markets are expected to grow at a mid-to high-single-digit compound annual growth rate (CAGR) over the near to medium term.

Bell Potter explains ALS operates one of the largest global environmental testing networks within the Life Sciences division, with a presence in over 35 countries.

Its Pharmaceutical segment is focused on building regional leadership in key markets such as Western Europe, offering services including CRO support, beauty and cosmetics claims testing, as well as batch release testing.

In food testing,ALS serves clients across the entire value chain (from farm to retailer) primarily concentrated in Western Europe.

The hub and spoke model

ALS operates a global network of over 385 hub-and-spoke facilities (where a central location is supported by smaller, decentralised sites) enabling efficient, scalable, and localised service delivery, explains Citi.

There are six Minerals hubs and 20 Environmental hubs spread across the Americas, Europe, Africa, and the APAC region, supported by around 80 Minerals spoke laboratories (i.e., excluding mine site laboratories) and circa 135 Environmental spoke laboratories.

Spokes are typically positioned near the company's customer base, serving as both sample collection centres and sites for basic testing or sample preparation before more complex analysis is conducted.

The low-cost, rapid-deployment model of spokes ensures faster turnaround times and allows management to flex capacity in line with demand.

This structure is particularly effective in managing sample volume volatility in Commodities as it moves through the exploration cycle, and accelerating growth in Life Sciences as spokes can be set up quickly.

To support future expansion, ALS plans to upgrade major hubs in Peru, Australia, Thailand, and the Czech Republic, with new capacity expected to come online between FY27 and FY30. Spokes require minimal set-up and operating costs.