Accident-prone Dialight warns again

Battered by a trio of profit warnings, Dialight's positive first-half results last July finally provided grounds for optimism. However, that was at 935p and we warned that the road to recovery is rarely straightforward and that the market would not forgive another slip-up. Well, they haven't, and the shares have been marked down as much as 39% after the LED lighting company's latest red flag.

It's not perhaps the way chief executive Michael Sutsko would have wished to start his new job. Less than two weeks are taking the role, the former president of Laird's performance materials division thinks a drop in orders since April is probably linked in part to a slowdown in the oil and gas sector.

Dialight reported better-than-expected first-quarter sales at its April AGM, but orders from US and Europe have slowed since, which will now drag full-year revenue and underlying operating profit "significantly" below expectations - last year the firm made £18.1 million on £160 million of sales. Next month's first-half results will also be lower than the £70.9 million of revenue and £6.5 million profit reported a year ago.

In response, Sutsko has launched an urgent strategic review of the business, but the shares still collapsed to 455p at one point Wednesday, their lowest since 2010 and down from over 1,400p less than two years ago.

Sutsko will look at the markets Dialight currently works in, along with its operations, supply chain and product development. Shareholders will learn more in the autumn.

Despite present pain, Dialight's board continues to believe in the longer-term outlook for the group, which supplies lighting for traffic, transportation and obstruction signals. This sentiment was previously echoed by Investec, which had described the company's growth profile as "exceptional" following the April AGM. They had forecast earnings per share growth of over 16% this year, 23% in 2016 and 19% in 2017. We wait for the adjustments.

In the meantime, accident prone Dialight is reminiscent of Frank Spencer in his prime. That will keep new investors away until the problems are properly identified and resolved, while existing shareholders will wonder what else is round the corner. We'll get a clearer picture at the interims on 27 July, but it will be some time before Dialight can be considered a recovery play.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.