LSI Industries Inc.
LSI Industries Inc. (NASDAQ: LYTS) is engaged in the manufacturing and commercialization of lighting products in various market outlets such as petroleum, automotive, grocery, Quick Service Restaurant (QSR), and convenience store. The company primarily deals in 2 segments i.e., 1) Lighting Segment, fabricates and assembles both conventional and LED light sources for outdoor and indoor lighting solutions. 2) Graphics Segment, manufactures and designs digital interior visual image elements such as interior branding, architectural and active digital signage, etc. As of April 29th, 2021, the company’s market capitalization stood at USD 227.89 million.
New product launched: As of February 19th, 2021, the company announced its launch of the New Advantage Series High Bay (AHB) electric lighting unit especially for warehouses, distribution centers, and automotive repair shops. This product is priced in a similar range to the conventional lamp-based lighting systems and will help the site employers to increase the illumination in the high ceiling work environment. The products are also available with daylight and motion sensors for enhanced safety and security features.
Q3FY21 Results: The company reported a 9.70% decline in net revenue to USD 218.59 million in the first nine months of FY21 as compared to USD 242.08 million in the first nine months of FY20. The Lighting segment contributes 62.33% while the Graphics segment contributes 37.67% to the total revenue for the first nine months of FY21. The company reported a 29.81% decline in net income to USD 5.67 million in the first nine months of FY21 as compared to that of USD 8.07 million in the first nine months of FY20. The company reported a 35.04% decline in free cash flow to USD 23.11 million in the first nine months of FY21 as compared to USD 35.59 million in the first nine months of FY20.
Key Risks: The sales of the company’s products are subjected to cyclical variation caused by changes in economic conditions for certain industries. During the periods of expansion in construction and industrial activity, the company benefits from increased demand for its products. During the downwards economic conditions in these industries, the company’s operational and financial condition gets impacted due to the decrease in sales. This cyclical nature of the business could affect the company’s operational and financial health over the long term.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
LYTS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: LYTS has already surged 42.85% in the past nine months and is currently trading at a slightly higher end of the 52-week range of USD 5.33 to USD 11.22. The stock is currently trading above the 200 DMA levels. We have valued the stock using the EV/EBITDA based relative valuation methodology and arrived at a target price of USD 9.41. On the technical chart, the next support level is at USD 7.84. Considering the significant rise in the stock price in the past nine-month, increase in product portfolio, but with decline in financial strength, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 8.60, traded flat as of 29th April 2021.