The market has got its knickers in a right old twist over Dialight's (DIA) update today, and if you're baffled by the near 14% share price collapse (down 183p to £11.55), join the club. Yes, obstruction lighting is sour. These are warning lights slapped on to tall buildings, mobile masts and wind turbines, among other things, designed to stop planes crashing in to them at night, for example. But this is not new news, it's been in the doghouse for a while.

That's partly due to wind tower subsidies in the US being axed last year, which pulled forward a ton of work in early 2012. Last year was also rampant in the UK, so revenues from the signals side were always going to be skewed. 'We expected the business to be heavily skewed to the second half of 2013 for this reason and therefore we maintain our forecasts,' wrote Gurpreet Gujral, analyst at N1 Singer, this morning.

Dialight LEDs Warehouse1

Dialight is investing in signals - new sales and production capacity - and that's a good thing. So while future revenues might remain tough to predict for several months, management is clearly confident of the long-term prospects for this part of the business, and that should be good for shareholders too. Our sources tell us that Dialight has recently popped by most of the 10 biggest mobile masts operators in the States, showing off its wares.

Then there's industrial LED lighting, a massive transformation of how the thousands of factories, warehouses and distribution centres will be lit in the years ahead. LEDs are brighter and about 10-times more energy efficient, cutting company bills, yet barely 1% of this market has so far been tapped. That's an enormous opportunity, and one that explains why Dialight's industrial LED sales are growing faster than 50% a year and will eventually dwarf signals (they're currently about 50/50 in revenue terms).

All in all, not a single analyst has cut forecasts. Yes, Dialight is highly rated (if not quite so high today as yesterday) but revenues and ebitda (earnings before interest, tax, depreciation, amortisation) are all growing at 20%-plus. It's also throwing off steady cash, £9 million of free cash flow expected this year, and £13.6 million and £18 million in 2014/2015 respectively, if analysts are right. That's likely to mean faster dividend growth ahead. Clearly the market isn't perfect and it's these imperfections that throw up a consistent stream of investment ideas. Dialight looks a bright one.

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Issue Date: 11 Jun 2013