Beacon Lighting seeing the light: Updating estimates after very positive 1H22 trading update

About the author:

Alexander Mees
Author name:
By Alexander Mees
Job title:
Co-Head of Research and Senior Analyst
Date posted:
19 January 2022, 8:00 AM
Sectors Covered:
Gaming and Retail

  • Strong demand for lighting products, notably premium installations, drove an excellent performance by Beacon Lighting (ASX:BLX) in 2Q22, allowing it to indicate today that its 1H22 earnings would be in line with the first half of last year, despite the effect of lockdowns during the period. This outcome is significantly better than we had expected, having previously forecasted a 12% yoy decline in sales and a 32% decline in NPAT. Trade and international also contributed to the strength of the 1H22 performance.
  • We have increased our NPAT estimate for the full year by 18% to $35m (FY21: $38m). We see no reason, barring a significant decline in renovation activity, for BLX not to be able to sustain positive growth into FY23 given its investment in new retail stores, the expansion of its trade business, and rapid growth in international sales.
  • We reiterate our ADD rating, with an increased target price of (login to view).  

Event

BLX released a market update indicating that it expected 1H22 sales and earnings to be ‘very much in line’ with those achieved in the PCP, 1H21. This implied, to use BLX’s own words, a ‘significant increase to analysts’ expectations’.

BLX achieved sales of $151.3m and NPAT of $22.2m in the PCP. Before upgrading our estimates today, we had previously been forecasting 1H22 sales of $133.2m and NPAT of $15.2m. The full results will be released on 17 February 2022. 

Analysis

BLX performed strongly across the broad base of its growth platforms: retail, trade, e-commerce and international. We believe demand for premium lighting was especially strong. With renovation activity, and the housing market, still buoyant, the underlying drivers of consumer demand for BLX’s products remain in good health.

Warmer summer conditions in the southern states may create an opportunity for demand for ceiling fans to accelerate in the near-term. 

Forecast and valuation update

We have increased our estimates for 1H22 as follows: our sales estimate rise by 14% to $151.3m, in line with 1H21. Our NPAT estimate rises by 43% to $21.7m, 2% lower than 1H21.

For FY22, our sales estimate increases by 3% to $292.8m. Our NPAT estimate rises by 18% to $34.7m. Our revised estimates imply sales in 2H22 of $141.5m (2H21A: $137.3m), and NPAT of $12.9m (2H21A: $15.5m).We expect positive sales growth in 2H22 due to the addition of new stores as well as growth in international and trade.

We expect margins to decline yoy in 2H22 because of product mix changes and cost inflation. 

Investment view

We believe there is significant long-term growth potential in BLX’s strategy to expand its retail store network in Australia; rapidly grow its sales to the Trade; and develop a leading lighting and ceiling fan business outside Australia. We certainly don’t think today’s earnings upgrade will be the last.

Higher long-run growth assumptions drive our target price up to (login to view) ADD.

Price catalysts

Acceleration of the international growth strategy.

Expansion of the product range to accelerate sales into the Trade.

Risks

A downturn in consumer spending on renovation in Australia.

Failure to grow Trade sales as expected.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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