Why we're excited about XRF Scientific this reporting season

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XRF Scientific is involved in the manufacture of equipment and chemicals used for preparation of samples for analysis by mining companies, commercial analytical laboratories and suppliers of construction materials globally.

The technology enables clients to measure the composition and purity of materials, improving product quality and ideally leading to increased productivity and yield for those businesses.

As far as the actual product offerings, XRF provides Fusion Machines, Flux and Chemicals, Platinum Labware, Precision Platinum and Lab Equipment.

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The XRF process

Firstly, a sample of the client's material, whether it be iron ore, base metals, cement, or steel, is pulverised into a fine dust then mixed with XRF's chemicals into one of XRF's supplied platinum crucibles. The sample and chemical are then fused at ultra-high temperatures using one of XRF's various electric or gas fusion machines depending on the sample being tested.

Finally, the molten material is poured into one of XRF's platinum moulds before the mixture cools and sets into a glass disk which can be placed into an XRF Spectrometer for analysis.

The key here is that XRF provides the full suite of items listed in the process and as a business we are also encouraged by the consumables element which drives recurring revenues on top of the capital equipment sales.

Global footprint with blue-chip clients

Not only does the business have a physical presence with manufacturing, sales and support facilities in Perth, Melbourne, Europe and Canada, there are also global distribution networks in place which bring XRF representation into the USA, South America, Africa, the Middle East and Asia.

Not only is the geographic reach widespread, but the calibre of clients also highlights the quality of the product, with XRF servicing the likes of Rio Tinto, BHP, Vale, South32, Glencore, Alcoa, Lafarge, Holcim, ALS, SGS, CSIRO and Bureau Veritas.

Tailwinds provided by mining sector ramp up

In a recent business update on results for the March 2021 quarter, XRF delivered profit before tax of $1.8 million, an impressive 81% increase against the corresponding March quarter of 2020.

While the business is seeing a steady flow of capital equipment orders from mining and industrial clients, a notable mention was the strong result in the consumable product sales, particularly driven by mining customers ramping up sample testing for both exploration and production.

Strong, consistent fundamentals

While the market cap for XRF Scientific is relatively small in comparison to the companies we would typically look to identify, we believe this to be a great business which exhibits solid financials over an extended period.

XRF has delivered consistent growth in key metrics, and after confirming a 47% increase in net profit to $2.4 million for the first half of FY21 in February and an impressive March quarter more recently, we are confident of continued growth being delivered in their upcoming full-year results to be delivered in August.

To further entice investors, XRF also pays an approximate 2.9% fully franked dividend.

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Michael Wayne is the managing director of Medallion Financial Group. With considerable experience in financial markets, Michael provides advice to a range of clients in both domestic and international equities, exchange trade funds (ETFs), managed funds and corporate deal flow.