Eco Investor March 2016

Core Securities

Beacon Lighting Justifies Early Promise

The strong share price performance by Beacon Lighting Group since its IPO two years ago seems justified with the company achieving record sales and a record profit for the December half year. Sales revenue was $98.5 million, up $7.7 million or 8.5 per cent on the December 2014 half. The net profit was $11.1 million, up $2 million or 22 per cent.

The company attributed the increase in sales to increases in comparative store sales, which rose 5 per cent, plus growth in trade sales and the acquisition of franchise stores. The profit was also helped by a decrease in operating expenses from 50.4 to 49.9 per cent of sales.

Beacon Lighting has so far been a good growth story. During the half year, it purchased the Essendon and Watergardens franchise stores in Victoria and opened new company stores in Bundall in Qld and Maribyrnong in Vic. Light Source Solutions, the name of the new business that sells GE globes under an exclusive license in Australia and New Zealand, was integrated into Beacon Lighting.

Earnings per share were 5.16 cents and the interim dividend is 2.3 cents per share fully franked. Last year's interim dividend was 1.8 cents. The company plans to continue the growth through a number of strategies, and the 44 per cent payout ratio in the December half gives it cash to follow through.

The strategies are:

- Opening new stores. Three are planned for the second half at Gungahlin (ACT), Preston (Vic) and Fairfield (Qld);
- Optimizing its existing stores;
- Looking at more acquisitions;
- Further reducing its expenses;
- Developing its early stage Light Source Solutions, Beacon International, and Beacon Solar businesses;
- Continuing to supply the latest products with 322 fashionable and energy efficient products planned for release in the second half;
- Enhancing its online activities.

The company is also considering investing in property at some of its locations.

With market conditions supportive, Beacon Lighting expects to see improved sales and profits in the second half.

Beacon Lighting sells more than stylish lights. It is a keen advocate for energy efficiency through its LED lights for almost any application and its wide range of ceiling and portable fans for cooling.

Combining these with a growth strategy has seen the shares triple in value. In April 2014 the 66 cent shares listed at $1.08 and a year later in May 2015 they peaked at $2.23. Since then they have mostly moved sideways between $1.80 and $2.10. At this level the yield is 2.6 per cent and 3.7 per cent after franking. (ASX: BLX)

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