Lpa Share Discussion Threads

[stewy_18] 24/1/2013 20:09

As requested (sorry it is without formatting):-

I was also a little surprised by the selloff but that can happen when the market cap is only £9 million. There seemed to be the expectation that LPA would significantly surpass forecasts. With forecast EPS at 5.9 pence and actual EPS for this year at 6.3 pence, there doesn't seem to be a huge amount of difference, so it might be LPA need to manage expectations a bit better.

It was a strange RNS and I re-read it several times to see if it clarified things. I have picked out 4 main points that could be seen as negative.

Potential Negatives
1. Company feel last year was a one off.
2. Rail re-franchising process causing uncertainty over future contract wins.
3. Increased debt and no cash on the balance sheet
4. Loss of contract


1) They seem to be saying that last year was a one off bumper year due, in part, to the Olympics:-

The year to 30 September 2012 surpassed expectations, both internal and external, due to the happy coincidence of a balanced order book and a number of significant contracts, some Olympics driven, won on short delivery schedules

followed by:-

The exceptional level of activity enjoyed during 2012 continued at the start of the current financial year but has now eased off.

So if last year was exceptional, what will it be this year? I don't have any forecasts or brokers notes so it would be interesting to see what the forecasts are. Are they saying that growth will be flat this year?

In all honesty, it seems a little odd to put that in an RNS that also announces two new contact wins totalling £ 1.3 million-

2) As you mention the rail refranchising process seems to have caused them some disruption to the business. This however also seems to be a temporary disruption with a deadline to resolve the issues by the end of Feb:-

We welcome the advice to the UK Department for Transport, contained in Richard Brown's report on Rail Franchising, to resolve the current hiatus, which is delaying investment decisions, by February 2013.

So again, I don't see this as a major issue if there is a resolution deadline for the end of next month.

3) Looking at the balance sheet, they only have £7000 cash and have increased net debt to £2.37 million to pay for the new factory in Saffron Waldon (Shire Hill). Again, this shouldn't be too much of an issue because they are going to sell the old Tudor Works site for between £1.8 and £3 million so there will be cash coming in. Nowhere in the RNS do they mention they have finance issues this year, so again this shouldn't be a problem.

4) In the RNS they mention :-

we are disappointed not to have been selected as lighting supplier for Thameslink trains

To mention this contract loss, it must have been a big one. Again, disappointing, but you have to look at that in the context of the increase of sales from the LED lighting products department.

Reasons to be cheerful

There was lots of good stuff mixed in with this RNS. As you mention profit before tax more than doubled to £877,000 on the back of only a 5.9% increase in sales. That is the kind of operational gearing that should see a real boost in profit in the coming years.

- The reason I bought LPA was for the LED lighting products division. Here sales increased 61.9% to £3.87m (2011: £2.39m). Did this provide the increase in profit? Does the lighting products division have a higher profit margin? I'm not sure. My expectation (hope) is that the lighting products division becomes the premier revenue stream for LPA in the coming years. If it keeps growing at that rate, I see no reason why this should not be the case. There is no mention, however, if they can maintain that level of growth.

- We already mentioned the sale of the Tudor works site which should provide a boost to the balance sheet.

- Looking forward, they seem to have the same on there order books as last year:-

The order book at the end of the year amounted to £10.4m (2011: £12.9m), but this does not include at least three major long term projects for which we have been selected, but for which values are as yet undefined and therefore not included in the order book.

So the outlook doesn't really look that bad for a growing company on a PE ratio of just under 12.

Only a couple of other things to mention

The year is likely to be back end loaded but, as a whole, is expected to be in line with our expected growth plan and current expectations. We have a good base load and many near term opportunities in prospect, in all our activities, but particularly for LED lighting and LPA Transport+.

So I wouldn't be expecting anything special when the interims are released. However, that could easily be offset by contract wins between now and July.

Not really related to this RNS, but there has been some discussion about Peter Pollock (CEO of LPA) during his time at Lionheart. It was a bit before my investment lifetime but you can read about it here:-



Conclusion

I think this is a cracking little company that could really do well over the next 3-5 years. If you look at Dialight (another LED solution provider), that has a market cap of £326 million vs LPA's £9 million so the potential is there. I think things will start to look a lot better when the move Shire Hill and the extension for the LED factory in Normanton is complete, hopefully by the end of this year. However, it looks like it will be a bumpy ride.


Disclaimer

I hold and continue to do so.

Any comments welcome

Regards

Stuart

[castleford tiger] 24/1/2013 18:34

stewy

cOULD YOU BRING YOUR POST OVER HERE for discussion.

I as i reported a few weeks ago sold a few at 97p. I have today started buying more and will buy the dips.
EPS 2nd half were 4.15p.
I expect us to earn about 9p this year and 12/14p next year.
Does debt worry me? No because we have bought assets.
The normanton site is being expanded and the year after this one it all looks very good.
There may be the matter of options to sort in february before we talk this higher.
This has risen from 30p to 100p and back to 60`s.............its still cheap.
Use the bad days to buy shares........today 15k blocks were available.
Use the strong days to sell them.
I intend to build my stake back to 2% plus.

Should have the latests numbers tomorrow.

Tiger

[vfast] 24/1/2013 17:36

I'm pleased I didn't buy any over the last few days when I was tempted. Good company but in the short term it may drift around this level or a bit lower.

[overmars] 24/1/2013 16:56

Does anyone have a view on how much they will get for Saffron Walden?

[stewy_18] 24/1/2013 16:12

Hi Oregano,

Good analysis. Just a few comments.

I would rather the management team were more cautious. I think everyone expected the earnings to be significantly higher than it was based on their August trading update. It was not the case.

I'm not advocating buying or selling these shares. But what I have noticed is that the LPA share price responds sharply to positive or negative news. Not buying the shares before H1 implies there will be no other news between now and the end of H1. I do agree however, there is a chance that the interim statement might be a bit weak.

With a PE of just under 12, I wouldn't call the shares expensive. By my analysis they already have approximately £11-£13 million on the order book for this year (see above link). It will indeed be interesting to see if they can replicate or better £18 million revenue this year.

If the LED division can grow at 60% a year (like last year), LPA will look very cheap. It really isn't clear to me however if this is possible. For this reason, I will hold for the next few years and see what happens.

Best of luck

Stuart

[oregano] 24/1/2013 15:30

there are a few reasons why I think this may drift;
1. This latest statement is more cautions than the last.
2. They have eluded to H1 weakness, is this normal? I don't know. but,
3. It means that PBT forecasts for this year, which I have as £700k, are down on last year, and a weak H1 might mean £300k or less. Sequentially it does not look great. So why buy before H1?
4. It is not cheap. EPS may well fall this year. 6p of earnings, 12x. it has debt, working capital in these numbers is poor. This is not a recurring income business. I think you can get flat earnings for 7x.
5. People are using 84p as a starting point, but that was puffed up into these numbers. look where the shares have come from a year ago.
Just my own thoughts obviously. Interested in the alternate view.

[stewy_18] 24/1/2013 15:29

If anyone is interested, I have put some comments here:-


As always, comments welcome.

Regards

Stuart

[bigwig] 24/1/2013 08:35

The shares are thinly traded so just a small number of nervous sellers sends the price down. It looks to be more stable now after the initial set of small sales going through. A few buys and they will pick up again. The statement was positive with very little to be negative about but I guess the mention of a few delays etc set off a little flurry of small panicky sellers. That's the trouble with a thinly traded share - mind you a few buys and up they would go again!
Bw

[stegrego] 24/1/2013 08:33

Just people getting out that maybe expected trading to be better due to good start to the year previously mentioned. Also the back weighting of profits also adds somewhat to the mix.

[jamielein] 24/1/2013 08:27

Yes, but that doesn't explain a 10%+ drop today. As far as I can tell, there was nothing bad in the results (apart from the Rail Franchise issue as mentioned above.

[stegrego] 24/1/2013 08:20

As far as I know, forecast is for flat profits in this current year.

[jamielein] 24/1/2013 08:19

I've done the same and I am also extremely confused.

[pj 1] 24/1/2013 08:14

Keep re-reading the statement. Still seems positive to me despite the short term Rail Franchise issue, still winning contracts, or have I missed something else?

[stegrego] 24/1/2013 08:07

I think you may be getting ahead of yourself here CT.

[castleford tiger] 24/1/2013 07:53

Not quite but well on the way.

I see this company making 2 million in the next year. We have to get the two sites sorted which will take most of this year.

I think this is a great little company that is doing the right things.

I will give a detailed report on the accounts later, but all looks great.
I wonder what internal forecasts for this year are?

Tiger

[castleford tiger] 23/1/2013 18:23

So will we make a million? pre exc?

Still fancy 100p tomorrow.

tiger

[cheshire man] 23/1/2013 15:40

Up again I see :-)

[bigbigdave] 23/1/2013 12:22

Got all my top ups when it was on the way down from 90p, much easier to buy :o)

[cheshire man] 23/1/2013 12:18

On such a few trades too,,,,,,,,,:-)seems any small buy moves it up,,,,,,,hard to get hold of many mind you ! all IMO

[cfro] 23/1/2013 12:08

Moving up ahead of tomorrows results.

[rampmeister] 23/1/2013 11:05

it will be interesting to see value of Saffron Walden site post planning consent believe it was 0.5m. previously. Also progress with expanded plant. Once this is completed they should be able to scale up and compete for the larger more lucrative contracts. I can't remember being this enthusiastic about a company since the very early days of renesola which 4 bagged for me.

RM

[interceptor2] 22/1/2013 20:46

On 21st August Xcap Securities increased estimates to EPS 5.90p after a trading update said full year to significatly beat expectations. Xcap EPS estimate is still the same at 5.90p after two further trading updates saying in October full to meet or exceed, then in November a stronger statement saying confortably exceeded expectations.

So I'm looking forward the markets reaction to Thursdays results, the only question is imo, by how much will the beat 5.90p?

ic2...

[jamielein] 22/1/2013 18:32

Can't your stockbroker call the marketmaker to do the deal?

[vfast] 22/1/2013 17:44

Cheers IC2, would like to buy a few more but the MM's only offering small quantities.

[castleford tiger] 22/1/2013 17:18

Nothing can be bought.

My target is 100p plus on results day.

tiger