Echelon Wealth Partners analyst Amr Ezzat says Lumenpulse’s (TSX:LMP) recent “blockbuster” second quarter is a sign of things to come for the company.
In a research report to clients today, Ezzat named Lumenpulse as one of the firm’s top picks for 2017. The analyst says the pure-play lighting solutions company has digested its recent acquisitions and is now focused on cost synergies and cross-selling opportunities.
“Lumenpulse exposes investors to exceptional secular growth trends,” explains the analyst. “We believe the current valuation does not properly reflect the Company’s best-inclass earnings growth profile. Admittedly, in F2015 and F2016 management was focused on bolstering its product offering by executing and digesting acquisitions. F2017 is pegged as a year of execution where we foresee the Company focusing its efforts on integration, transitioning LMP into a double-digit EBITDA margin operator. While we recognize some of the lumpiness in quarterly performance and acquisition related one-timers, we expect these to taper off as early as the current fiscal year, significantly improving sales visibility and earnings quality. Namely, we expect the top line to grow 30.6% from F2016 to F2020. We forecast Adj. EBITDA margins to reach 20.8% by F2020, up from 7.6% in F2016, driving a 67.7% Adj. EBITDA CAGR over the same period (Exhibit 3). ROIC moves from negative territory to 7% during the current fiscal year. Longer term, at higher utilization levels, we anticipate LMP to be a high-20% ROIC operator.”
On December 8, Lumenpulse reported its Q2, 2017 results. The company earned $3.2-million on revenue of $56.3-million a 51 per cent topline bump over the same quarter a year prior.
“Our North American sales teams, which now have access to four of our five brands including Fluxwerx, delivered solid revenue growth,” said CEO Francois-Xavier Souvay. “Outside North America, our growth was tempered by the financial underperformance in the U.K. At this time, the financial performance of our experienced UK sales team does not truthfully reflect the performance of this team in building our presence, developing pipeline of specified projects, and the key role they play in developing various project specifications that originate in the UK but are delivered elsewhere in the world. We have noticed that new UK based specifications are taking a longer time to convert. While economic uncertainty in the UK persists, we remain cautiously optimistic about our future prospects in the region. Other regions are performing in line with expectations. We continue to execute on our product road map. During the second quarter, we successfully introduced the new Lumenalpha collection, which adds 30 new luminaires for commercial, retail, institutional and hospitality markets. We also launched the latest generation of the Lumencove Nano and new optics for Lumenline. Furthermore, we are realising synergies across our portfolios, with orders that include several brands for the same project.
Ezzat today maintained his “Buy” rating and one-year price target of $22.00 on Lumenpulse, implying a return of 19.4 per cent at the time of publication.
Ezzat thinks Lumenpulse will post EBITDA of $27.1-million on revenue of $224.9-million in fiscal 2017. He expects these numbers will improve to EBITDA of $41.6-million on a topline of $281.2-million the following year.