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 a holding in my growth portfolio(epic code: DIA).
I initially covered Dialight here as a growth portfolio candidate and here a day later on 22 July when they announced their interims. At the interim stage although they produced good growth in the lighting division of 70% there were problems with the Obstruction part of the signals division where sales declined by 40%. There was a further announcement on 12 September stating that due to continued delays in the placing of orders for Obstruction Systems, they expect the results for 2013 to be similar to 2012, for which I'm assuming to mean 40.7p (diluted EPS for the continuing businesses).
Following the profit warning on 12 September the SP declined by over 16% to 1150p and although it recovered a little over the next couple of weeks, I managed to pick up some shares last week for 1090p.
The expectation is that the issues with Obstruction Systems are expected to be of a short term nature, they stated at the time of their interims that they were in negotiations with 5 US customers with a total potential of 27,000 towers, I reckon that should eventually represent $77m worth of business. By their very nature the order receipts for the Obstruction Systems business addressing cell phone and broadcasting towers will be lumpy. This market in the US is expected to be worth about $400m.
The expectations are for a return to growth in 2014 with consensus at about 60p EPS, with continued strong growth in the Lighting Division and the Signals Division seeing the likely result of the successful conclusion of some of those US orders.
In a recent report on the LED sector by Edison they state that data from McKinsey expects a CAGR of 47% pa. during the period 2012-16 for the LED Industrial lighting sector. The problem that Dialight clearly have, is managing the lumpy order intake from the Obstruction Systems business alongside the fast growing Lighting Division.
Hi Jeff,
ReplyDeleteI like DIA and had been a holder for some 3 years or so. However, I became a little concerned following the second profits warning in September - I work on the notion that bad news always comes in 3s and I think the sp could see quite a fall if another comes along anytime soon. So I decided to off-load.
The price is down around 10% since then and I would be happy to hold again when the problems are more resolved as the prospects for the industrial lighting sector are exciting.
I am also keeping an eye on AIM-listed FW Thorpe.
Good luck with this one.
Hi John,
ReplyDeleteYou are quite right, it is certainly a risky entry and I may have a few exciting moments over the next few months, but as a pure play industrial LED business it is
probably the only opportunity in the UK.
I have taken the long view that the problems with the Signals Division is short-term and the Lighting Division's high growth will continue. Completely understand your decision though, after having such a good ride over the last three years - an excellent investment decision.
TFW was covered in the Edison report on the sector. They appear to be still selling over 70% traditional lighting, so I guess their prospects will depend on how they manage that transition. Family owned with a low free float and from what I can see no analyst coverage.
I'll also be keeping an eye on TFW, although I do find some family owned businesses with low fee floats view the AIM market more as an IHT mitigation tool than a partnership with other stakeholders.