Luceco (LON:LUCE) - £30m cash acquisition boosts earnings
Yesterday this supplier of wiring accessories, EV chargers, LED lighting, and portable power products, announced the acquisition of CMD Limited, the market-leading manufacturer of wiring accessories for the workplace.
The Acquisition
This purchase is expected to be earnings-enhancing in its first full year of ownership.
CMD Limited, which was founded in 1984, designs and manufactures a comprehensive range of wiring accessories for commercial premises, where it holds a leading position in the UK.
Its products include under-floor and under-desk power distribution solutions, on-desk and in-desk sockets, and a range of ergonomic products including the award-winning Miro monitor support arm.
CMD has an experienced senior management team which will remain with the business, continuing to operate from its headquarters in Rotherham.
CEO John Hornby stated that:
"Luceco has a well-established position as a leading supplier of wiring accessories to the residential market in the UK so CMD, with its leading position in the commercial wiring accessories market, is a very natural fit.
The Group's expertise in product development, manufacturing and sourcing will enable us to accelerate range innovation and improve margins for CMD.
We also see an opportunity to offer Luceco's professional lighting range to CMD's customer base of specifiers and contractors.
The acquisition is in line with our M&A strategy and follows the successful acquisition of D-Line earlier in the year."
Recent Interims
Three weeks ago, Luceco announced its Interim Results to end-June showing an 8.4% increase in its halfway sales to £109.6m (£101.1m), while its adjusted pre-tax profits were 19.1% better at £11.2m (£9.4m), lifting its interim earnings 32.4% to 4.5p (3.4p) while paying out just 1.7p (1.6p) as its half-way dividend per share.
At that time John Hornby commented that:
"These are strong results despite a challenging market backdrop.
The Group's diverse portfolio and channels have ensured that we continue to grow and achieve a good financial performance, with adjusted operating profit up 17% in H1 2024.
We are successfully integrating D-Line, which we acquired in February 2024 and we expect it to add circa £15m of sales in 2024.
The balance sheet remains strong with debt levels at the lower end of our target range, giving us flexibility to continue to invest in new organic and M&A opportunities in line with our capital allocation policy."
The company pointed out that the market consensus was for an adjusted operating profit of £26.1m for the full-year.
The Equity
With some 161m shares in issue, the larger holders are Epic Private Equity (28.0%), John Hornby (18.1%), Blackrock Inc (9.0%), Apex Financial Services (5.2%), the Luceco Employee Trust (4.1%), and Columbia Threadneedle (1.8%).
Researcher Views
Adrian Kersey, at Panmure Liberum, yesterday had a Buy note out on the company following the acquisition announcement, looking for 200p a share as his Price Objective.
His estimates are for the full-year to see sales rise to £234m (£209m), with adjusted pre-tax profits of £22.9m (£21.2m), earnings of 11.3p (10.4p) and a 4.9p (4.8p) dividend per share.
Going into 2025 he sees £263m revenues, £25.7m profits, 12.7p earnings and a 5.1p dividend.
Jumping into the 2026 year he estimates a £275m turnover, £28.2m profits, 14.0p earnings and a 5.2p dividend.
Over at Longspur Research, its analysts Adam Forsyth and Max Campbell upgraded their estimates and issued a ‘central case valuation’ of 254p for the group’s shares.
For this year they have £234.6m sales, £23.2m profits, 12.0p earnings and a 4.8p dividend.
In 2025 they look for £265.1m revenues, £25.1m profits, earnings of 12.9p and a maintained 4.8p dividend.
The 2026 year they see £271.9m turnover, £27.6m profits, 14.2p earnings and an uplifted 5.3p per share dividend.
Into 2027 the analysts foresee the current group with sales of £281.1m, £30.2m of profits, 15.5p earnings and a 5.7p dividend.
They state that they see this acquisition offering attractive potential cost synergies for Luceco, whilst also presenting potential growth opportunities in the longer term.
In the shorter term, the analysts expect to see elements of CMD’s manufacturing moving to the Luceco manufacturing facility in China, helping to deliver cost savings and margin improvements.
My View
The acquisition of CMD looks to be a sensible and strategic deal, financed within the group’s means and not stretching.
It is expected to be earnings accretive into 2025 and 2026.
The group’s shares were 3.5% better at 155.5p on the back of the deal.
In late July this year I wrote that the shares remain a medium-term Hold, for buying on any big dips in price but certainly not for chasing.
They were then 167p and that was, obviously, before the acquisition.
They have since been up to 172p and down to as low as 139p – so now could well be a sensible time to tuck a few away, awaiting the next strategic deal or corporate announcement.
(Profile 15.06.20 @ 96.1p set a Target Price of 125p*)
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