Luceco (LUCE) has suffered a huge share price sell-off after the company issued a profit warning. The LED lighting specialist saw its market value collapse to £224m following a 46% crash in the share price to 125.6p.

Luceco now says it expects to profit after tax to come in at £13.2m. That's £3.5m, or a 21% markdown from the £16.7m that had been expected this year to 31 December 2017.

If the massive share price reaction seems a little out-of-kilter with the profit adjustment, there's a decent reason. Only three weeks ago chief executive officer John Hornby sold £4.69m worth of stock, no doubt leaving many investors furious.

In fairness to the CEO, the cause of today's warning does suggest that new information has suddenly come to light, rather than a skeleton that's been lurking in the background for weeks.

It's also worth noting that Hornby retains significant skin in the game, his stake now worth 19.5% of the business. Presumably, no one has a better incentive to fire Luceco's operational performance, rebuild investor trust and repair the share price.

STUNG BY SOARING RENMINBI

Luceco, which designs and sells wiring accessories, extension cables and wall mounts for TVs as well as LED lighting systems, has been caught out by currencies.

The strong rally of the Chinese renminbi against the dollar has done particular damage to gross margins. The company has also been hurt by the continuing relative weakness of sterling and rising costs of some raw materials.

Someone's head had to roll and Luceco's finance controller is carrying the can, jumping before the inevitable push.

PROFIT COULD ALSO BE HIT IN 2018

But these issues could drag on for a while. Margins are not expected to recover until the second half of 2018.

Numis analyst David Larkam says depending on the extent of price hikes and internal action, there could be a 15% impact on pre-tax profit in the year to 31 December 2018.

The analyst is playing it safe with his rejigged forecasts, slicing 20% off his previous £20.9m 2017 estimate, and made a similarly sized cut to 2018 estimate. He is now expecting £21m in 2018 rather than £26.3m.

Larkham has also sliced his dividend expectations, about 20% lower to 1.6p per share this year.

Taking a longer-term view, investors might see the value in the company's long list of blue-chip customers, such as Travis Perkins (TPK), Grafton (GFTU) and Screwfix, owned by Kingfisher (KGF).

But the immediate outlook remains uncertain.


Issue Date: 15 Dec 2017