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Dialight: cost benefits beginning to accrue

The LED lighting specialist continues the implementation of its restructuring programme
February 27, 2017

Without wishing to sound non-committal, it's still too early to fully determine the efficacy of Dialight's (DIA) restructuring programme, but we can say that the signs are encouraging. All but two of the group's lighting product lines have now been transferred as part of the outsourced manufacturing partnership with Sanmina Corporation.

IC TIP: Hold at 965p

Disregard currency effects and top-line performance at the group's key US and European markets was broadly unchanged. A 200 basis point increase in the lighting division's gross margin suggests that cost benefits are beginning to accrue, underpinning a 24 per cent increase in adjusted group profit on that basis. Additional costs, mainly non-cash, linked to the group's transformation meant that Dialight remains in negative earnings territory, but over the long run should help the group to manage its supply chain and inventory levels far more efficiently.

The next phase of the plan involves reinforcing the group's position in the expanding LED lighting market through improved aftersales services and further focus on integrated solutions for industrial end-users. The lighting division saw an 8 per cent increase in order intake at constant currencies, demonstrating the growth potential.

Investec increased its target price by 26 per cent and guides for respective cash profit and EPS of £26m and 35.4p in 2017, against £20m and 26.5p in 2016.

DIALIGHT (DIA)
ORD PRICE:973pMARKET VALUE:£314m
TOUCH:968-973p12-MONTH HIGH:1,030pLOW: 420p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:238p*NET CASH:£8m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201211519.842.013.5
201313111.226.214.4
201416015.529.415.0
2015161-3.9-6.4nil
2016182-3.8-8.4nil
% change+13---

Ex-div:-

Payment:-

*Includes intangible assets of £15.4m, or 47p a share