About the author:
- Author name:
- By Josephine (Jo) Little
- Job title:
- Senior Analyst
- Date posted:
- 25 August 2014, 8:48 AM
- Sectors Covered:
- Consumer Discretionary, Industrials & Developers
Beacon Lighting's (BLX) maiden result as a listed company didn't disappoint, beating prospectus forecasts across the board. The group is clearly benefiting from more buoyant housing market conditions, while also controlling its own growth via new store rollout, significant product innovation and cost control.
Maiden result beats prospectus
BLX's FY14 result was above prospectus forecasts at each major line item (EBITDA +4.1%; EBIT +4.9%; and NPAT +2.8%). With NPAT increasing 25% on the pcp, the company's result was a standout in the retail sector. The result was underpinned by strong lfl sales growth (5.7% vs prospectus forecast of 4.9%), new store openings (6 new stores and one franchise acquisition) and operating cost efficiencies. BLX's lfl sales accelerated in the 2H in particular (+6.7% vs 5.1% in the 1H), an exceptional result given widespread industry weakness post the budget and provides strong momentum into FY15.
Various drivers of growth
While no formal FY15 guidance was provided, management commented that it had started FY15 with 'mid-single-digit' lfl sales growth, a strong start to the year. We forecast 10% EPS growth in FY15 and FY16. We expect both revenue and earnings to be driven by:
- lfl sales growth
- new store rollout (c6 per annum)
- online sales penetration growth (from c2% up to 5-6%)
- technology advancements (replacement cycle)
- product innovation
- store refurbishments/optimisations
- growth in the emerging businesses (solar and Beacon International)
An innovative retailer in a market sweet spot
Our EPS forecasts increase by c4% and our now pure DCF valuation and price target increases to A$1.23 (from A$1.04). BLX continues to boast a strong balance sheet (minimal net debt), high ROE (>25%), industry-leading margins and strong cash flow generation.
We rate this business and management highly, but based on valuation (19x FY15F PE) we retain a Hold rating.
Morgans clients can access our detailed research report on Beacon Lighting (BLX). If you are interested in finding out more, please contact your nearest Morgans office.
Disclaimer(s): Morgans Corporate Limited was the Lead Manager and Underwriter to the IPO of Beacon Lighting and received fees in this regard.
Analyst owns shares.
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