Monday 19 October 2015

Dialight (DIA) ... more expensive than you think?

Monday 19th October 2015

Dialight has defied gravity of late. I wonder if buyers realize how expensive it likely is. 

Bloomberg consensus earnings expectations for full year 2015 are set at 21.7p per share. That would suggest DIA trades on a relatively pricey 32x this year's earnings. But it's likely no where near that cheap. 

Firstly, as I have highlighted prior (Dialight - three years in a row), a 21.7p outturn would require that Dialight's second half earnings performance is more than 3x improved upon what it reported in the first half of 2015. In H1 2015 it only managed 5.4p per share of earnings, down 63% from H1 2014. A 21.7p full year performance would mean 16.3p of earnings in H2 2015 to meet consensus. 

But there's more ...

That Bloomberg consensus forecast is calculated from the mean of submissions by six analysts. However, two of these are seemingly significant outliers. They are so hopeful, that they expect full year 2015 earnings to be north of 30p per share! 

30p full year earnings would require a miraculous bounce in Dialight's performance from a 63% YOY earnings contraction in H1 2015 to 12% YOY growth in H2 2015. This seems unlikely. 

I reckon full year earnings will be 12p per share at very best, and that DIA is on course for a 45% miss. But my view is neither here nor there. What seems more likely is that the two outliers in the consensus will have to significantly cut their forecasts, which I reckon would bring consensus down to c. 17.6p. Even though I reckon 17.6p would still likely be overoptimistic, what it would mean is that DIA is not on a relatively pricey 32x earnings, it's probably on 40x. 

I note the outliers are also considerably more optimistic for 2016 forecasts as compared to their fellow analysts.

Dialight 2015 and 2016 consensus earnings per share breakdown
Two outliers to the upside
Source: Bloomberg
Dialight share price
Source: Bloomberg
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  1. Congrets on Globo! Today its DIA. Have you looked at their 2018 targets (e.g. 15% EBIT margin!)? I have to do the work, but on first glance they look like wishful thinking.

    1. Thank you.
      The 2018 targets seem preposterous. How can a company set such lofty 2018 targets when it can't even provide visibility on the next quarter?!?
      Canaccord the house broker have made savage cuts to their 2015e and 2016e forecasts today. They've cut Adj. 2015e EBIT by 61% to £6m and 2016e EBIT by 44% to £10.5m resp. It's more expensive than I thought!


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