Guess which ASX retail share delivered record FY23 results and is trading on a P/E that's almost half the All Ords?

This investment could be a shining opportunity.

| More on:
A person working on a computer holds a lightbulb that is connected to the network and shining brightly.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Beacon Lighting Group Ltd (ASX: BLX) share price has been having a rough time – it's down almost 30% in the past 12 month. And it's fallen more than 40% from the peak in January 2022, as we can see on the chart below.

The ASX discretionary retail share is facing uncertainty amid higher interest rates, like a lot of companies that sell items related to the housing sector.

Created with Highcharts 11.4.3Beacon Lighting Group PriceZoom1M3M6MYTD1Y5Y10YALL1 Jan 20227 Sep 2023Zoom ▾Jan '22Apr '22Jul '22Oct '22Jan '23Apr '23Jul '23Jan '22Jan '22Jul '22Jul '22Jan '23Jan '23Jul '23Jul '23www.fool.com.au

Yet despite interest rates starting to rise before the start of FY23, the company achieved record sales in the 2023 financial year.

Let's have a quick look at how the lighting business performed.

Earnings recap

Sales grew by 2.5% to $312 million, which was impressive in the economic environment.

However, the operating expenses increased by 6.9%, so margins worsened during the year. Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 7.6% to $85.6 million, while net profit after tax (NPAT) fell 17.4%.

While the ASX retail share's net profit didn't improve, there were a number of positives. These include the 21.6% trade sales increase and 36% online trade sales increase, new trade products and other trade initiatives. In addition, the company opened two new stores and relocated two others, and increased its spending on marketing.

A bigger investment in marketing can help support and grow the company's sales. As long as it's well spent, it's not just the company losing out on the profit margin – it can help sales in FY24 and beyond.

Is the Beacon Lighting share price valuation attractive?

The company's price/earnings (P/E) ratio is relatively attractive – it's valued at 11.5x FY23's earnings per share (EPS).

However, the P/E ratio may not seem quite as attractive if FY24 sees another profit decline. The ASX retail share did disclose that company store comparative sales "made a slower start to FY24".

According to Commsec, the Beacon Lighting share price could be valued at 13x FY24's estimated earnings, so it is expected to see a profit decline.

It's understandable if earnings were to fall this year, but it appears to me that the business is setting up a good long-term future.

Beacon Lighting plans to open eight new stores in FY24, while continuing to expand its Australian-designed fan and light products into the United States, Asia and European markets. The company has identified the potential for 195 stores in Australia, which Beacon said signified a potential 64% growth in the store network.

Its 'new businesses' growth has been impressive. In FY23, the Beacon Europe sales increased 53%, while the number of lighting showroom customers in the US increased around 33%. Sales increased in the Tmall Global sales channel in China by nearly 100%. At this stage, these are all small numbers.

Foolish takeaway

I believe that short-term pain in the Beacon share price can be a long-term opportunity.

By FY25, it could generate EPS of 14.6 cents, according to Commsec, and pay an annual dividend per share of 8.5 cents. That would mean it's valued at 12x FY25's estimated earnings with a possible grossed-up dividend yield of 7% for that year.

It went ex-dividend today, meaning new investors won't be entitled to the upcoming 4 cents per share dividend. I think that the business can rebound nicely if/when the outlook for earnings starts improving. Its global growth plans could be very useful for earnings growth in the long term.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retail Shares

a thoughtful shopper with shopping bags wearing sparkly gold dress and matching shoes reclines on a chair with hand to chin in thought.
Retail Shares

Can Lovisa's new high profile CEO take Lovisa shares to new heights?

Is Lovisa about to embark on a new era of growth?

Read more »

A woman sits on sofa pondering a question.
Retail Shares

After soaring 244% in 5 years, how much further upside does Macquarie tip for Nick Scali shares?

The broker's expectations remain steady.

Read more »

Girl with make up and jewellery posing.
Retail Shares

Buying the dip: $5,000 invested in Lovisa shares a month ago is now worth…

It's been an outstanding first month for new Lovisa shareholders.

Read more »

Woman checking out new iPads.
Retail Shares

JB Hi-Fi share price sinks on sales growth figures

JB Hi-Fi shares are under pressure on Wednesday. But why?

Read more »

a close up of a motorcycle's front wheel and body on the open road with another motorcycle rider in the background cruising behind the leading driver.
Retail Shares

Up 100% in 11 months, can this small-cap ASX stock keep flying higher?

This business has delivered huge returns. Is it still a buy?

Read more »

A happy woman peaks out from under her bed sheets
Retail Shares

Interest rate cut beneficiaries: Should I buy Adairs or Temple & Webster shares?

These two ASX stocks should benefit from rate cuts.

Read more »

A warehouse worker is standing next to a shelf and using a digital tablet.
Retail Shares

3 reasons why the Wesfarmers share price could still be a buy

Wesfarmers is a wonderful business for a few reasons.

Read more »

A senior pharmacist talks to a customer at the counter in a shop.
Share Market News

Where are Australian consumers spending their money in this environment?

Macquarie research reveals new spending trends and the best ASX 200 retail stocks to buy now.

Read more »