CRASH! Beacon Lighting Group Ltd share price plunges 20%

Beacon Lighting Group Ltd (ASX: BLX) has seen its share price sink 25% to a low of $1.18, after the lighting company announced that the last 10 weeks of sales were disappointing.

The company says “sales have not met management’s expectations”, with sales up 4.6% for the first 18 weeks – since the start of January 2016. Beacon says there were a variety of factors, including:

  • Change in timing of the Easter break, in what is an important home renovation period
  • Weak consumer confidence
  • An increase in clearance activity by competitors in the lighting category, and
  • reduced exposure in key advertising initiatives compared to last year.

Beacon says it now expects to report Earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2016 financial year (FY16) of between $28.2 and $29.2 million, compared to $27.4 million in FY15.

That would equate to EBITDA growth of just 4.7% – not much for a company that had become a market darling since listing in April 2014 and EBITDA growth of 21.8% in the first half of FY16.

Based on the mid-point of EBITDA guidance at $28.7 million, the new forecast suggests EBITDA will fall 14% in the second half (H2) of FY16 compared to FY15.

H1 FY15 H1 FY16 FY15 FY16 H2 FY15 H2 FY16 H2 Change
EBITDA $14.5m $17.6m $27.4m $28.7m $12.9m $11.1m -14%

Source: Company reports, my calculations

No wonder shareholders have taken a stick to the share price today.

Prior to the downgrade, Beacon’s shares were trading on a trailing P/E of 20.3x, now shares are trading at 16x earnings. That’s closer to the market as a whole and perhaps reflects a small increase in net profit after tax and earnings per share for FY16.

The downgrade is surprising too, given furniture retailer Nick Scali Limited (ASX: NCK) upgraded its earnings guidance just two days ago. Nick Scali faces the same consumer confidence issues as Beacon Lighting. JB Hi-Fi Limited (ASX: JBH) also reported two weeks ago that it was seeing good sales momentum in the second half, with sales up 8.6% in the third quarter.

Other ASX-listed companies to watch closely now include bathrooms and kitchen fixtures and fittings supplier GWA Group Ltd (ASX: GWA), Harvey Norman Holdings Limited (ASX: HVN) and Shriro Holdings Ltd (ASX: SHM) which distributes a wide range of kitchen appliances and consumer products, including ovens, cooktops, dishwashers, BBQs, fans and air conditioners.

Foolish takeaway

Investors appear surprised that not only has Beacon reported lower sales, but that the company is not immune to economic conditions, nor price action by competitors – unrealistic expectations for any retailer really.

The Beacon Lighting share price had recovered somewhat to be down 19% at $1.295.

Forget Beacon and Woolworths. This "dirt cheap" company. is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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