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

About the author:

Author name:

By Alexander Mees

Job title:

Head of Research

Date posted:

19 January 2022, 8:00 AM

• 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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