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BLX - Beacon Lighting Group

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Took a cursory look at this company. The ROE and profit margin seems quite high for a brick and mortar retailer selling light fittings.

According to my calculations, it has a very impressive free cash flow yield of 20%. The company has little debt, has increased it's dividend 5 times in the last 10 years and yields about 4% with a payout ratio of just 36%.

Is this stock unusually cheap or am I missing something obvious?
 
darien44 said:
Took a cursory look at this company. The ROE and profit margin seems quite high for a brick and mortar retailer selling light fittings.

According to my calculations, it has a very impressive free cash flow yield of 20%. The company has little debt, has increased it's dividend 5 times in the last 10 years and yields about 4% with a payout ratio of just 36%.

Is this stock unusually cheap or am I missing something obvious?
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had never particularly thought about this stock until 5 minutes ago

my uninformed opinion

the public would see it as 'bricks and mortar retailer .. but i hold WES , BWP , JYC and SUL , and ask if BLX is performing like a home reno stock ??

remember that old quote about a polling machine v. a weighing machine ( in the market )

so given the lock-downs AND housing bubble , has this got more to run , while home quarantines allow a house prettied up for sale ??

an after-thought , check if any anns about renegotiating the rents , that would give you some guide , if they can pay full rents they could be cruising very nicely

cheers
 
Any company that is riding on the back of the housing / building boom 2.0 is going to benefit and have it's share price increase and BLX is one of them. So if you have enjoyed the share price gains and dividends, well done. :xyxthumbs

It's easy to feel left out of the massive real estate boom 2.0 that has yet again doubled up the homes in capital cities in such a flash during the pandemic, if we were not in the right stocks like BLX to piggy back on.

Well, in the Speculative Stock Portfolio we have hitched a ride on the same boom with a building material stock CSR and have recently sold out for a healthy gain and enjoyed the bountiful dividends during the holding period.
 
aus_trader said:
Any company that is riding on the back of the housing / building boom 2.0 is going to benefit and have it's share price increase and BLX is one of them. So if you have enjoyed the share price gains and dividends, well done. :xyxthumbs

It's easy to feel left out of the massive real estate boom 2.0 that has yet again doubled up the homes in capital cities in such a flash during the pandemic, if we were not in the right stocks like BLX to piggy back on.

Well, in the Speculative Stock Portfolio we have hitched a ride on the same boom with a building material stock CSR and have recently sold out for a healthy gain and enjoyed
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aus_trader said:
Any company that is riding on the back of the housing / building boom 2.0 is going to benefit and have it's share price increase and BLX is one of them. So if you have enjoyed the share price gains and dividends, well done. :xyxthumbs

It's easy to feel left out of the massive real estate boom 2.0 that has yet again doubled up the homes in capital cities in such a flash during the pandemic, if we were not in the right stocks like BLX to piggy back on.

Well, in the Speculative Stock Portfolio we have hitched a ride on the same boom with a building material stock CSR and have recently sold out for a healthy gain and enjoyed the bountiful dividends during the holding period.
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Interesting, thanks. So other than benefiting from a short term covid tailwind, is there anything that would make this company a worthy longer term investment?
 
darien44 said:
Interesting, thanks. So other than benefiting from a short term covid tailwind, is there anything that would make this company a worthy longer term investment?
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now that is the hard question , can the management use the tailwind sensibly , many other companies chockful of ego and confidence speed straight into a brick wall , and relax and let their brains go on an extended holiday ( and those were BIG companies with plenty of experience in the ranks )

so if trying to outguess the management isn't your thing , what about their industry , can it do MORE than just survive , 10 years ago i would have a lot more positive , but now we are seeing extraordinary interventions by politicians and regulators , for instance i remember one workplace INSISTED a fully licensed electician replaced flourescent light tubes ..sadly we didn't have one on staff and a former Mount Isa Mines electrical engineer was deemed unacceptable ( and would have done it between the other workplace duties and normal wages )

what i ( personally ) wouldn't do with BLX is put a LARGE amount of money in them , currently , an affordable bet , sure , and if the company is solid the share price should grow ( or if it dips a bit decide if buying some more , cheaper is wise ) , this is more a reflection on the economy in general you will have to make a judgment call on the management ( i have done that elsewhere and suddenly it is takeover target , by an angry major holder or frustrated co-founder , and similar stuff , or they just start making dumb decisions )
 
One other thing I noticed, and this could be entirely on the wrong track, is that they seem to cultivate a good relationship with electricans and will recommend them to clients. I mention this point, as I've heard of other companies with surprisingly high ROE's that work on what could be called a
" friendly middleman" business model.

Basically, customers are not so price sensitive for what they pay if the recommendation is coming from these 'friendly middleman' like electricans, plumbing contractors etc. This is a big reason lens makers like Essilor have such high margins.
 
darien44 said:
One other thing I noticed, and this could be entirely on the wrong track, is that they seem to cultivate a good relationship with electricans and will recommend them to clients. I mention this point, as I've heard of other companies with surprisingly high ROE's that work on what could be called a
" friendly middleman" business model.

Basically, customers are not so price sensitive for what they pay if the recommendation is coming from these 'friendly middleman' like electricans, plumbing contractors etc. This is a big reason lens makers like Essilor have such high margins.
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in my experience when i had 'a very small businss ' that strategy worked for me as well ,

but remember that 'margin' includes extra time taken to listen , and research products , etc etc. it looks great , and in the long term it normally works out that way

so while not be as juicy as it seems , but is still good because it inspires repat sales , returning irritated customers are very bad especially for staff morale
 
darien44 said:
Interesting, thanks. So other than benefiting from a short term covid tailwind, is there anything that would make this company a worthy longer term investment?
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@divs4ever has answered your question very well, so I will only add a short comment.

I am very cautious when people start talking long term and fall in love with stocks. Just my opinion but these stocks that is benefiting heavily from the new home/renovation boom will have trouble growing at double digits each year once the tailwind of that boom no longer exists some day in the future.

As mentioned above, management can play a huge part in navigating the company and setting the future direction. An example is AGL which I have held long term and seen it's share price halve and keep on falling. But that's the problem, you can't let go of the relationship once you fall in love. Another reason these type of holdings I have such as AGL, TLS etc. which are not much talked about or put into active management such as the stocks in the spec portfolio. Why put in a portfolio because there isn't any transactions, as there was a buy.... and err that's about it. Maybe can add hold and collect dividends along the way, Dividends have made a difference in making up for the share price decline, so hope they continue to pay them.
 
i TRY to look for companies that will survive now 2020 has tested many to an extent i never saw coming , yeah the banks were always doing risky stuff and liable to get busted , but b chaotic lockdowns , supply lines that have all sorts of disruptions

gee it will be interesting to see which companies survive until 2022 ( and avoid being taken-over as well )

i went back through the inherited stuff and found documentation on the Rinker take-over , wow that was a lesson in business buy a company ( using leverage ) to repay your existing debt and pay out the Rinker loan with the Rinker profits
 
Shareholders in lighting retailer Beacon Lighting will see a record dividend for the full-year after growing its profits by 70% thanks the COVID driven boom in new housing and renovations. Beacon reported a net profit to $37.7 million for the year June after sales grew a more sedate 14.7% to $288 million.

Company store comparative sales increased by 13.3% in the year, online sales were a record $26 million, up 60.3% and Beacon International saw record sales of $12.3 million, up 45.3%.

The company will pay a final dividend of 4.6 cents a share, taking the full-year payout to 8.8 cents, 76% above that paid in 2019-20.

The company, like so many others in building and construction and supplies benefited from the boost from the HomeBuilder assistance package that ended in mid-April, as well as first home buyer packages from various states.

While Western Australia was the company’s “most exciting” state in terms of sales performance, sales remained high in Queensland, South Australia and NSW.

Beacon said it will continue to target tradie customers to get a bigger slice of the building and construction market, with the business now opening stores at 7.30am and developing more trade-specific products.

The surge in sales wasn’t at the cost of margins. In fact, Beacon said its EBIT margin (a key metric in retailing as it measures earnings before interest and tax) jumped to 20.6% from 15.1%. Net margin on after tax profits rose to 13% from 8.8% (a rise of nearly 50% and helps explain the higher growth in profit than in sales. But it said ongoing lockdowns continued to impact sales.

That apart, Beacon is upbeat on the next year:
“Looking forward into 2021-22, the Beacon Lighting Group is very well placed to take advantage of the working from home trend, increased housing churn, home office upgrades and move to more online shopping,” chief executive Glen Robinson said.
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“Despite the ongoing uncertainty associated with the COVID-19 pandemic and lockdowns, the Beacon Lighting Group is excited about the opportunities moving into 2021-22 and beyond.”
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blah blah blah
Rule 1 rule 2,3,4
Buy after the chart's done a streaker and we're fully invested and wouldn't mind a buying cushion for when we divest

Is there a company which ticks all the boxes?​

One of the companies that tick a lot of the boxes for us is Beacon Lighting. If you look at the historical financials, they tend to suggest it's a high-quality business. It's got a gross margin in the mid 60s, it's got a return on equity in excess of 20%, an interest cover of x10, a robust history of sales growth and it's in a net cash position. So we really like the historical financials of this business but we're also very attracted to the future fundamentals. It's the clear market leader domestically, it has a store network of close to 120 outlets which is vastly greater than the number two player in the domestic market which only has seven stores. We really like management, we think they've got a really strong ability to expand that store network, but also convert about 30% of those stores into higher-yielding superstores. And then we're also attracted to the international opportunities. We think they've got the ability to expand their international sales, especially within the US market, where that ceiling fan market is underpenetrated and vastly undersold.
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Not Held

2 year weekly chart
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finicky said:
Buy after the chart's done a streaker and we're fully invested and wouldn't mind a buying cushion for when we divest
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.......... and that was about it for Beacon; a gentle letdown from $3.20 at end of 2021, to touch $2.31 early March. Recovery of sorts since then back to $2.80. Some of this was driven by market news, an update on 20 Jan wasn't well received nor was the Full Year Results on 20 Feb. We saw Pendal group take a 5.3% stake (one of their funds buying?) soon after the lows .

In Jan, Chief Executive Officer, Glen Robinson said total sales have been maintained, while gross profit margins and expenses have continued to be carefully managed, but that may have just meant the Covid safety play wasn't as strong as hoped for, by investors.
“the continued lockdowns and ongoing disruptions throughout H1 FY2022 have been challenging for the Beacon Lighting Group, our teams and our customers. Despite these challenges, the Group is aligned with the household goods sector and has benefited from the strong interest in the lighting and ceiling fan product categories from our customers."
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The FY2022 numbers were fair. There was nothing really standing out, but growth was modest and probably most of what was positive had already been anticipated by the market. Gearing is a little high, and the aim to grow stores, online, trade + international may be ambitious. Other than that, metrics are undemanding.
..............................................................................

Ally Selby: Hey, how are you doing, and welcome to Buy Hold Sell. I'm Ally Selby, and today we're talking about two of investors' favourite things, dividends and small caps. While small caps are hardly known for their dividends, these gems are really not as rare as you may think. So to analyse five of them, we are joined by Martin Hickson from 1851 Capital, and Ben Rundle from Hayborough Investment Partners.

First up, we have Beacon Lighting, which recently announced a fully franked dividend of 4.3 cents per share, and also has an annual dividend yield of around 3.6%. Martin, I might start on you. Is it a buy, hold, or sell?

Martin Hickson (BUY): We think Beacon's a buy. We're going through a renovation boom at the moment that's supportive of their earnings. We also think the market is underestimating the growth in their trade and international businesses. So, Beacon's a buy.

Ally Selby: Beacon's share price has cascaded around 16% since the beginning of the year. Ben, over to you. Is it a buy, hold, or sell?

Ben Rundle (BUY): I agree with Martin. I think it's a buy for all the reasons he mentioned. I think the strong conditions they're seeing at the moment will persist for a while, and management's done a fantastic job with this company. They've grown the earnings three times since they listed, and they haven't required extra capital to do so. So, when they say they've got new initiatives that they've been working on for a while, I'm happy to back them.
 
Beacon Lighting results out; up 25c to $2.45
  • delivered a record net profit after tax of $41.7 million, an increase of 8.15 per cent on FY21,
  • delivered record sales of $304.3 million, up 5.4 per cent, with a gross profit margin of 69 per cent.
  • The board will pay an FY22 dividend of 9.3¢ per share to shareholders, up from 8.8¢ in FY21.
Beacon hopes to grow trade sales in Australia by more than 25 per cent in FY2023 and will focus on rolling out new stores domestically.

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BLX @ 1.42
Retail's now a contrarian bet. This one's now down something like 55% from its high. My current intention is to get a few so that I will monitor it more closely. Using its second worst year of fy2019, a ROE of 20% for that year and fy2022 book value of 0.60 I give it a value of 2.40. It's a buck lower than that. I'm not penalising it further for high leverage given there are things like steady rising trend of book value, static share issuance that I'm not crediting to it.
Before I do get a few I would need a chart signal of some kind and not seeing that yet. Lower seems more likely than not?

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WEEKLY
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I looked at this very hard for a couple of months. In the end it wasn't for me as the price was way above my range of valuation. (FCF has plummeted the last few years once adjusted for distortions in accounting.) I would have to check but I think even at $1.30 its expensive.
 
@galumay will take that onboard. Won't be of value to you but I have a charting target of $1 - 1.25 but it is very tentative right now. I've made a couple of rash and hasty chart calls recently.
I'll be going into how the company has been spending its cash after your heads up. After all it could be fruitful capital investment (like new stores or product development) that has so far manifested in a trend of higher book value and resurgent ROE couldn't it?
 
Doesn't appear to be so, also I visited their store in Darwin earlier in the year and that was not a positive for the research/analysis! No one in there, staff didn't bother to come over and talk to me as I wandered thru the store. I think it needs to be cheaper still!
 
I Haven't been able to be methodical about it but reading through the Feb16 investor presentation, I got the impression of a pretty dynamic business that is currently most focused on winning trade custom. They have some sort of tradie club. They've 'reformatted' some stores to better service this. There was something about the amount of new products they've designed, something else about improving their online portal. Pretty patchy - that is all that's left in my recollection after reading it a couple of days ago. I keep telling people I'm no genius but they never believe me. So far I have steered away from the financial report. But it seems to me that they are constantly reinvesting and their past performance as seen on Commsec's summary shows that their retained earnings produce high returns.
Anyway, I am till inclined to buy a sample if it gets to $1.25 and the chart is a bit encouraging. I require you to smash my enthusiasm with a few simply presented facts.
 
Sorry, no can do. Anecdotally I hear good things about the CEO from a mate who is very well connected in the business world, I think that plays into a lot of what you mention from the investor pressos. I want to like them enough to take a position, but I havent got to the point of having sufficient conviction to put capital there rather than simply adding to the best idea I am already invested in!
 
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