Luceco hoping to mitigate supply issues through higher pricing

Luceco (LUCE) makes half its money from wiring accessories and the other half from a combination of LED lighting and portable power products. Demand for its products is growing, largely driven in the last year by discretionary spending in the residential market. The issue for the company is that it ships most of its products from China and it is obliged to purchase copper for its electrical activities, and both activities that have become a lot more expensive during the pandemic.

At a constant currency rate, Luceco’s sales increased 58.4 per cent, compared with the first half of 2020 to £113m. More revealingly, it also represents a 36.4 per cent increase on 2019 levels, when it wasn’t benefiting from the favourable Covid-19 comparators. It also managed to increase its gross margin by 10 basis points to 38.5 per cent, despite rising input costs.

Costs for copper and plastic have increased by 37 and 71 per cent, respectively, in the year to date. Sea container costs have also increased five-fold over the same period. So, Luceco is expecting cost inflation amounting to £13m through 2021. In the first half of the year, it offset a third of the rising costs through price increases and management expects to pass over half of the additional costs through to customers in the second half, though it still expects a slight margin squeeze.

House broker Numis has kept its guidance unchanged and is expecting EPS to rise to 20p for full-year 2021 and up to 21.3p in 2022.

Luceco's share price was in retreat on results day, presumably due to the supply chain concerns. However, a resilient gross margin suggests it has the pricing power to pass the costs on and its LED lighting and new EV charging product gives it exposure to the gathering renewables market. Buy.