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magazineElectrical surge as investors rush for Luceco
The average home is littered with chargers and leads for phones, laptops and tablets. It is easy to lose part of a charging unit, causing frustration. It can also be difficult to find a spare socket as homes now have so many electrical devices.
That’s created a market for new electrical wall sockets that contain both three pins and a USB port. Embracing this sales opportunity is Luceco (LUCE), a lighting and wiring specialist that’s just floated on the stock market (17 Oct 2016).
In hot demand
Shares in Luceco have increased by 15% to 150p since its IPO (initial public offering) earlier this week. It is easy to see why investors want to light up their portfolios with the stock. We see considerable upside for the share price.
Luceco makes and distributes wiring accessories, power products and LED lights. It has a diversified customer base, selling to trade, retail and direct to corporates for specific projects. For example, it changed all the lighting to LEDs in Screwfix stores across the UK.
In addition to opportunities with USB charging points, take-up of LED lighting is gathering pace. LED lighting is more efficient, becoming cheaper and supports public policy as incandescent lights are phased out. That plays to Luceco’s strengths.
The UK LED lighting market is expected to enjoy 15.4% compound annual growth between 2015 and 2020, forecasts AMA Research. Globally the LED market is estimated to see 16.8% compound annual growth between 2014 and 2019, reckons Frost & Sullivan.
Profit surge
Luceco’s earnings growth has been impressive. Revenue increased from £65.6m in 2013 to £103m in 2015. It earned almost as much in the first half of 2016 (£60m) as it did in the whole of 2013.
Pre-tax profit moved from £2.2m in 2013 to £8.3m in 2015. The first six months of the current year imply this stellar growth trend is firmly intact, having made £5.3m pre-tax profit – or £10.6m annualised.
Luceco is in expansion mode. Cash generated from operations is being reinvested into new facilities and offices. For example, it has been expanding its manufacturing operations in China and has opened sales offices in Europe, Asia and the US.
Dividends in sight
The company raised £22m after fees at the IPO to repay debt and bolster working capital. Dividends are scheduled to begin next year, paying 20% to 30% of adjusted net income.
We impose a wider than normal 30% stop loss to accommodate for any short-term profit taking by people who made a quick buck on the IPO. Earnings forecasts are expected in the next month or so.
Risks include a UK economic downturn. Luceco is also reliant on three customers which accounted for 38.5% of group revenue in 2015. (DC)
Luceco (LUCE) 150p
Stop loss: 105p
Market value: £241m
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