Dialight interims

Supplier of light emitting diode (LED) solutions for industrial users. Applying leading edge LED technology, it produces retro-fittable lighting fixtures designed specifically for hazardous locations, obstruction signals and traffic signalling.  I have no holding in this company (epic code: DIA). 

As I mentioned in my previous post, DIA announced their interims today.  In summary the growth in the Lighting division (70%) was better than I was expecting and the decline in the Signals division (21%) worse than I was expecting.  They also comment that the Obstruction part of the Signals Division declined by more than 40%.

The affect on operating profit is detailed in the table below:



Click on table to enlarge

 








DIA have stated in their presentations that Lighting is the "engine for growth" and these results clearly demonstrate that, but the drag on profits from a poor performing Signals division must be reversed.  Although the volume decline in Signals was worse than I was expecting, the decline in contribution margins by 860bps required some explanation that was not forthcoming.  I am assuming that this was caused by initial minimum commission payments to the newly recruited sales force in the USA.  This would be a temporary situation and is not unusual when recruiting established sales professionals.  It would be good to know that this is the case, rather than price erosion due to the increased competition that was mentioned in their prelims presentation.

The SP is up just under 3% on these results, but it will take sometime for the market to digest them . The final paragraph in their outlook states "...The results for the year will be impacted by the transition of the obstruction business in the first half. The timing of the award of new contracts in Obstruction is uncertain. Despite this the Board believes that the results for the year will be in line with the range of market estimates..."  Which adds an element of uncertainty and, if the Signals division situation is a case of volume and margin erosion, then Lighting and Components will be unlikely to compensate for the full year.

It is worth looking at the results by division for the trailing twelve months (TTM) comparing this to the 2012 results; it is clear without a substantial recovery in Signals it is difficult to see them meeting market estimates of about £24m PBIT (excluding discontinued).  It is also worth noting that although the Lighting division had a good set of interims, their profits were not as good as the second half of last year, so they have some challenging comparatives coming up.



Click on table to enlarge



 

This will still be an interesting company to track but, with the temporary problems they have, there may be better opportunities for an entry, with possibly less risk.