- Pandemic created havoc for company’s demand cycle
- Shares rally hard as investors see stability returning to business
- CEO John Hornby excited by EV opportunities
UK electricals and lighting business Luceco (LUCE) is attempting to draw a line under the Covid pandemic, which has played havoc with its demand cycle.
The Telford-based company reported a 29% rise in half year to 30 June 2022 revenues of £106.4 million and adjusted operating profit 60% up at £11.5 million. Both figures were drawn against 2019 first-half results. That the company prefers to be measured versus three years ago is a sign of just how disruptive the worldwide Covid pandemic has been for Luceco, both good and bad.
The worst of the lockdowns were a plus for the company, which supplies a wide range of home improvement products to big box outlets. DIY has seldom been as popular with most of us shut away from the outside world. The flipside of that demand has been large destocking since things got back to normal.
SHARE PRICE VOLATILITY
Luceco shares surged five-fold between March 2020 and August 2021, only to subsequently lose all of those share price gains. Today (6 Sep) the stock jumped 17% to 93.9p as management moved to draw a line under this tumultuous spell.
While there has been a slowdown in DIY demand post-lockdown, Luceco said market demand for its products is stronger than current results suggest, due to customer destocking. ‘Whilst we were not able to match the record benchmark set last year, our results remain significantly ahead of pre-pandemic levels, underlining the strategic progress we have made over recent years,’ said chief executive John Hornby.
Luceco added it is emerging from the pandemic as a stronger business with significant long-term growth prospects, although destocking is likely to last into next year. ‘The current headwind from customer destocking is likely to continue into early 2023 but is fundamentally temporary in nature,’ said Hornby.
CASH AND MARGINS IMPROVEMENT
‘Our margins and cash generation are improving and our balance sheet is in good shape.’
The half-year figures show gross margins of 34.7%, roughly matching 2019’s 35%. Reported operating margins were 9.4% versus 8.5%, while after adjustments, they were 10.8% versus 8.7%.
‘I am encouraged by the progress and potential of our recently acquired businesses, particularly the access they have given us to the growing electric vehicle charging market,’ said Hornby. ‘I am confident that we are well positioned to continue to perform as we navigate a period of macroeconomic uncertainty.’
The shares now trade on current year EV/EBIT (enterprise value/earnings before interest and tax) and PE (price to earnings) multiples of 6.7 and 6.3 respectively. ‘This reflects the extent of earnings risk now priced in,’ said Numis analyst Kevin Fogarty.
