Electronic components and LED lights manufacturer Luceco (LUCE) saw its share price jump after telling the market that it expected first half profit and cash generation to be ‘at least as strong’ as last year as cost cuts helped to offset weakened revenue.
Shares in the £195m company rallied more than 16% on Thursday to 122p, the highest the stock has been since the Covid-19 pandemic emerged on the global scene in mid-February.
Last year’s first half adjusted operating profit was £7.2m, and perhaps more encouraging still, Luceco expects double-digit adjusted operating margins, a stark recovery from the mid-single digits recently.
‘Improved profitability has been sustained since the second half of 2019 and the full year free cash flow margin implied by our forecasts is indicative of the structural improvements that have been achieved,’ said Numis analyst Kevin Fogarty today.
COST CUTS AND ONLINE SWITCH
While revenue fell 10% between January and March this year, as the virus outbreak forced factory shutdowns and squeezed supply chains, these pressures have significantly eased more recently. At the same time, profitability was protected in both quarters by operating cost streamlining, and by embracing online as a distribution channel.
‘Today’s trading update is stronger than we had expected, confirming a better than anticipated second quarter revenue run rate, following the removal of lockdown restrictions combined with the impact of a channel shift to online,’ said analyst Fogarty.
This means that Fogarty has substantially rethought his full year forecasts, including nearly doubling his pre-tax profit expectations. They jump from £7.6m previously to £14.9m, implying earnings per share to double, from 3.7p to 7.3p.
