Luceco (LUCE.L; FTSE Small Cap. Market capitalisation: £272m, 169p, 2.9% of JIC Portfolio. Medium Risk/High Reward = 3.0% target weight)
Luceco plc is a United Kingdom-based company that is engaged in the manufacturing and distribution of wiring accessories, light emitting diode (LED) lighting and portable power products for global markets. The Company’s product wiring accessories include switches and sockets, circuit protection, outdoor wiring devices, junction boxes, cable management, commercial power, and accessories.
H1 Trading update
Conclusion: It achieved 8% revenue growth y-o-y and an improvement in margins of 0.8%. It expects operating profit to have increased by 15% y-o-y to around £12.5m. So far so good. It expects performance for the full year to be inline with expectations but mentions the significant increase in the cost of container shipping. Furthermore, it is expecting growth in its core markets to return in the not-too-distant future! It says its recent acquisition has integrated well. Further acquisitions are likely. Luceco has done well in a difficult environment. Should the environment improve, as it expects, then the current valuation looks good value on 14.3x December 2024 earnings per share, falling to 12.3x 2025 (15% growth).
It's up 18% on my average purchase price earlier this year. The risks are that shipping costs increase even further and the hoped-for improvement in the trading environment does not materialise. On balance, I think management is worth backing at the current valuation, and I feel happy with my 3.0% position. Happy Holder
H1 2024 Trading
· The Group has performed strongly in the first half of the year.
· H1 2024 revenue grew 8% year on year to c. £109m (+ c. 3.5% on a like-for-like basis).
· Adjusted operating profit expected to be in the region of £12.5m, + c. 15% year on year.
· Adjusted operating margin improvement of over 80 basis points year on year to c. 11.5%.
Balance Sheet
· Covenant Net Debt : EBITDA ratio at 1.2x remains at the lower end of our stated target range of 1-2x, despite the acquisition of D-Line in February 2024.
· Strong balance sheet and cash flow generation provides optionality for further organic and M&A opportunities consistent with the Group's stated capital allocation policy.
Outlook
· The Board is encouraged by the strong start to the year with performance expectations for the full year in line with market expectations.
· We continue to closely monitor the cost of container shipping, which has recently increased significantly.
· Key industry metrics remain weak, however, we remain confident that growth in our core markets will return in the not too distant future.
Commenting on trading, Chief Executive Officer, John Hornby said:
"Luceco performed strongly in the first half against a challenging market backdrop. The Group's diverse portfolio and channels have ensured that we continue to deliver progress, with adjusted operating profit up around 15% in H1 2024. Our acquisition of D-Line, which completed in February 2024, is expected to add circa £15m of sales this year and has integrated well into the Group. The balance sheet remains strong with debt levels towards the lower end of our target range, giving us flexibility to pursue new organic and M&A opportunities in line with our indicated capital allocation policy."
