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On Wednesday, Goldman Sachs analyst Niraj Shah adjusted the firm’s stance on ALS Ltd ., a company listed on both the Australian Securities Exchange (ASX:ALQ) and over-the-counter (OTC:CPBLF), by downgrading its stock rating from Buy to Neutral. The price target also saw a slight decrease, now set at AUD17.70, down from AUD17.80.
Shah’s analysis highlighted that ALS Ltd. is currently trading at a next twelve months (NTM) enterprise value to earnings before interest and taxes (EV/EBIT) multiple of 16.8x Goldman Sachs estimates (GSe), which is above the Testing, Inspection, and Certification (TIC) industry median of approximately 14x. Despite this, the analyst believes that ALS Ltd. deserves a premium due to its significant exposure to commodities, which have recently shown signs of price increases, and an expanding market reach.
However, when considering the company’s earnings growth, Shah noted that ALS Ltd.’s valuation appears to be broadly in line with its peers. This assessment is based on the ratio of NTM EV:EBIT to the three-year compound annual growth rate (CAGR) of EBIT, where ALS Ltd. stands at 1.7x compared to the average of 1.9x.
The decision to downgrade the rating follows a period of significant outperformance for ALS Ltd.’s stock. Since being added to Goldman Sachs’ Buy List on April 2, 2023, ALS Ltd.’s shares have risen by 43%, outpacing the S&P/ASX 200’s gain of 17% over the same period.
In his commentary, Shah also outlined potential risks that could impact the stock’s performance. Upside risks include better-than-expected results from the company’s turnaround strategy at Nuvisan, a swift recovery in the commodity cycle, and favorable price/mix outcomes. On the downside, risks involve challenges in executing the company’s strategy, lower-than-anticipated commodity margins, and poor allocation of Scope resources.
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