Beacon Lighting: 1H22 result - we’re fans
About the author:
- Author name:
- By Alexander Mees
- Job title:
- Co-Head of Research and Senior Analyst
- Date posted:
- 18 February 2022, 11:30 AM
- Sectors Covered:
- Gaming and Retail
- Beacon Lighting (ASX:BLX) indicated last month that its 1H22 sales and earnings would be ‘very much in line’ with the record performance in 1H21. The full result confirmed that sales were flat YoY and EBITDA up 4%.
- Resilience in retail demand for BLX’s lighting and ceiling fans in the face of lockdowns in NSW and Victoria was complemented by strong growth in Trade and International.
- BLX has had an ‘encouraging’ start to 2H22. We have increased our NPAT estimates by 0.5% in both FY22 and FY23.
Despite all the challenges of COVID-related lockdowns, BLX reported 4% yoy growth in EBITDA in 1H22.
Although the company pre-announced on 20 January that its first half earnings this year would be ‘very much in line’ with the first half of last year, we are still struck by just how strong trading has been given COVID-enforced temporary store closures. LFL sales, including the effect of lockdown, were down 7.1% on 1H21 but up 15.9% on 1H20.
The dividend was 4.3c, fully franked.
Analysis and outlook
Growth pillars in the ascendancy
BLX reported steady sales in 1H22, despite the effects of lockdown on retail LFLs. This reflected the success of BLX’s various growth pillars. Notable among these was Trade, BLX’s self-confessed ‘#1 growth opportunity’, which delivered 20.4% growth in sales in 1H22. Trade Club members grew by 21% to 48,000 and online Trade Club sales were up 70%.
The International business grew sales a remarkable 65% following the launch of a new B2C website in the US. Customer numbers in the US grew by 131% in CY21. International accounted for just 5% of group sales in 1H22, a proportion that we believe can (and will) grow) significantly over the medium to long term.
Ecommerce sales rose by 41% and made up 13% of group sales in 1H22.
Retail sales supported by premiumisation
Retail sales were resilient in the face of lockdowns in NSW and Victoria. BLX launched 231 new products during the period and increased its investment in marketing. There was also a trend towards consumers buying more premium-end products, which generate a richer margin.
Overall, the gross profit margin of 70.0% was 160bp up yoy and 190bp more than forecast. The store count increased by 3 to 118 locations.
Inventory purchasing stepping up
BLX ended the period with a record $83.4m in stock (1H21: $68.8m). BLX brought forward purchasing to take advantage of more favourable FX and is, in our view, well placed for future sales growth.
Forecast and valuation update
BLX stated that ‘company store comparative sales have made an encouraging start’ to 2H22.
There are no material changes to our earnings estimates. Our forecasts for NPAT rise by 0.5% in both FY22 and FY23.
Lower peer company multiples lowered our EV/EBIT valuation slightly and took our target price down by (login to view).
We believe macro factors in Australia are likely to be supportive of domestic customer demand for BLX’s products in the future. These factors include a buoyant housing market, a busy construction industry, and a current reallocation of consumer spending from overseas travel into home-based expenditure. This will be significantly augmented by BLX’s growth strategies in the International and Trade markets.
Multiples are still undemanding, and we are happy to retain an ADD rating.
Supply chain disruption.
Failure to execute growth strategies.
An unexpected fall in consumer spending on renovation.
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