Luceco PLC (LON:LUCE) shares shone out on Wednesday as the LED lighting specialist upped its profit guidance amid a “sustained improvement in end-user demand”, leading City broker Peel Hunt to upgrade its rating to ‘buy’ from ‘add’.
Since giving an update a month ago, the FTSE All-Share-listed company said its performance has continued to improve and it now expects a full-year adjusted operating profit of “at least £18mln to at least £23mln”, up from earlier guidance that profits would be above £18mln.
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Telford-based Luceco attributed the improvement to its continued out-perform of the UK market “as a result of our higher share of online / multi-channel capable customers and consumer/DIY markets, where demand has been robust”.
In reaction, in a note to clients, analysts at Peel Hunt said they have increased their pre-tax profit forecasts for Luceco to £22.7mln from £17.5mln for full-year 2020, to £24.2mln from £19.0mln for full-year 2021, and to £25.3mln from £20.0mln for full-year 2022
They pointed out that their EPS estimates increase to 11.6p/12.4p/12.9p, respectively, for the same three years, up from 8.5p/9.2p/9.7p previously, further boosted by a lower tax charge of 19.3%, down from 23.5%, due to better utilisation of tax losses.
The analysts added: “Our TP was based on 14x FY22E, which we now raise to 16x to reflect the scope for still further upgrades and for the higher quality of the business reflected in the EBITA margin, now expected to be c.15%.”
The Peel Hunt target price increases to 198p from 135p, leading to the upgrade to ‘buy’ from ‘add’.
Analysts at Liberum Capital also hiked their target price to Luceco in response to the trading update, to 220p from 200p, maintaining a 'buy' rating, after raising their full-year 2020 EBIT forecast by 34%.
In their note to clients, the Liberum analysts concluded: “We now see upside risk to Luceco's through-cycle margin guidance of 10-15%. Beating the top-end during Covid in H2 suggests a 15% margin is more likely through the cycle.
“We see share price potential towards 320p medium term, as the stock re-rates to quality. For now, we raise our FY21 EPS by 26% and our TP to 220p.”