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Dialight – 2016 results review as share price recovery continues

By Steve Moore | Tuesday 7 March 2017

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.

Previously writing on LED lighting technology company Dialight (DIA) I noted somewhat of a share price recovery to 759.5p, but that ahead of the results for the 2016 calendar year I avoided. The following now reviews post those results – and with the shares having risen further…

The results statement emphasises “underlying operating profit” increased from £6.1 million in 2015 to £13.1 million in 2016 on revenue of £182.2 million (+13%) and that “we remain confident of the group's prospects for 2017 and over the medium to long-term, based on current FX rates”.

However, there was then £0.5 million of interest paid and a £10.2 million “non-underlying” outflow. After though particularly £2 million of net capex less than depreciation+amortisation, a £5.7 million net working capital inflow and a favourable exchange rate impact, there was an £11.8 million swing to a £8 million net cash position.

Current assets over total liabilities were £8.4 million higher at £42.3 million – this including an increased £40 million of receivables and £31.4 million of inventories. These are important to monitor going forward, whilst the stated “underlying operating profit” included a favourable exchange impact of £1.5 million and the revenue growth was only 2% at constant currency.

There are forecasts for adjusted pre-tax profit to increase towards £20 million this year, but there are to be further ‘exceptional’ costs too – and this all compares to a current market cap, with the shares having now recovered back to above 1100p, of more than £350 million.

At the present juncture, this looks excessive – and to leave precious little margin for error. Thus, though admittedly the current share price suggests I’ve been too cautious with this recently, the current value proposition sees me certainly continue to avoid.

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