The Beacon Lighting Group Ltd (ASX: BLX) share price has been having a rough time – it's down almost 30% in the past 12 month. And it's fallen more than 40% from the peak in January 2022, as we can see on the chart below.
The ASX discretionary retail share is facing uncertainty amid higher interest rates, like a lot of companies that sell items related to the housing sector.
Yet despite interest rates starting to rise before the start of FY23, the company achieved record sales in the 2023 financial year.
Let's have a quick look at how the lighting business performed.
Earnings recap
Sales grew by 2.5% to $312 million, which was impressive in the economic environment.
However, the operating expenses increased by 6.9%, so margins worsened during the year. Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 7.6% to $85.6 million, while net profit after tax (NPAT) fell 17.4%.
While the ASX retail share's net profit didn't improve, there were a number of positives. These include the 21.6% trade sales increase and 36% online trade sales increase, new trade products and other trade initiatives. In addition, the company opened two new stores and relocated two others, and increased its spending on marketing.
A bigger investment in marketing can help support and grow the company's sales. As long as it's well spent, it's not just the company losing out on the profit margin – it can help sales in FY24 and beyond.
Is the Beacon Lighting share price valuation attractive?
The company's price/earnings (P/E) ratio is relatively attractive – it's valued at 11.5x FY23's earnings per share (EPS).
However, the P/E ratio may not seem quite as attractive if FY24 sees another profit decline. The ASX retail share did disclose that company store comparative sales "made a slower start to FY24".
According to Commsec, the Beacon Lighting share price could be valued at 13x FY24's estimated earnings, so it is expected to see a profit decline.
It's understandable if earnings were to fall this year, but it appears to me that the business is setting up a good long-term future.
Beacon Lighting plans to open eight new stores in FY24, while continuing to expand its Australian-designed fan and light products into the United States, Asia and European markets. The company has identified the potential for 195 stores in Australia, which Beacon said signified a potential 64% growth in the store network.
Its 'new businesses' growth has been impressive. In FY23, the Beacon Europe sales increased 53%, while the number of lighting showroom customers in the US increased around 33%. Sales increased in the Tmall Global sales channel in China by nearly 100%. At this stage, these are all small numbers.
Foolish takeaway
I believe that short-term pain in the Beacon share price can be a long-term opportunity.
By FY25, it could generate EPS of 14.6 cents, according to Commsec, and pay an annual dividend per share of 8.5 cents. That would mean it's valued at 12x FY25's estimated earnings with a possible grossed-up dividend yield of 7% for that year.
It went ex-dividend today, meaning new investors won't be entitled to the upcoming 4 cents per share dividend. I think that the business can rebound nicely if/when the outlook for earnings starts improving. Its global growth plans could be very useful for earnings growth in the long term.
