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Dialight – now targeting “materially ahead of expectations”. But…

By Steve Moore | Wednesday 7 December 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

LED lighting technology company, Dialight (DIA) has updated that “following a good November performance and looking forward to the prospects for December, the group is now targeting an underlying EBIT (including FX) for the year ending 31 December 2016 materially ahead of expectations”. But…

“Revenue expectations remain for a modest constant currency revenue performance, with reported revenue to benefit from a positive FX impact”. It thus appears it will be currency translation driving a material outperformance, though the company reckons it also “continues to make good progress implementing its strategy to fundamentally improve the group's operating model and thus position itself for long-term, sustainable growth”.

A need to improve the operating model was reflected in a performance which has seen the shares down from reaching almost 1400p in 2013 to sub 400p earlier this year. They have since recovered somewhat – and further so on the back of the latest update, to a current 759.5p.

However, I remain wary of performance (and particularly so in constant currency) – with the ‘operating model improvement strategy’ meaning write-downs, restructuring costs and the like – a stated £4 million underlying pre-tax profit comparing to a statutory pre-tax loss of £7.1 million at the half-year stage.

As such, ahead of the results for the 2016 calendar year, scheduled for 28th February, I currently avoid.

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