LSI Industries Inc.

LYTS Details

LSI Industries Inc. (NASDAQ: LYTS) is engaged in the manufacturing and commercialization of lighting products in various market outlets such as petroleum, automotive, grocery, Quick Service Restaurant (QSR), and convenience store. The company primarily deals in two segments i.e., 1) Lighting Segment, which fabricates and assembles both conventional and LED light sources for outdoor and indoor lighting solutions, and 2) Graphics Segment, which is focused on the manufacturing and design of digital interior visual image elements such as interior branding, architectural, and active digital signage. As of May 26, 2021, the company’s market capitalization stood at USD 237.96 million.

Acquisition of JSI: On May 24, 2021, the company announced the acquisition of privately held JSI Store Fixtures from RFE Investment Partners, for a cash purchase price of USD 90.0 million. JSI is a provider of retail commercial display solutions throughout North America and supplies major supermarket, convenience, and specialty store chains with branded display solutions. In FY20, JSI reported total revenue and adjusted EBITDA of USD 70.0 million and USD 10.0 million, respectively.

New Product Launched: On April 06, 2021, the company announced the launch of its new Advantage Series Vaportite (EGA) luminaire, an enclosed and gasketed LED fixture that is ideal for wet locations, cold storage, and parking garage applications. The luminaire is IP65 certified, is lightweight, and easy to install.

Q1FY21 Results: The company reported a slight increase of 1.68% in total revenue to USD 72.20 million in Q3FY21 (ending March 31, 2021) compared to USD 71.01 million in Q3FY20. Revenue from the graphics segment was USD 26.46 million in Q3FY21, 20.31% higher than USD 22.0 million in Q3FY20. However, net income for Q3FY21 was USD 1.47 million, lower than USD 1.86 million in Q3FY20.

Key Risks: The sales of the company’s products are subjected to cyclical variation caused by changes in economic conditions for certain industries. The company benefits from increased demand for its products during periods of expansion in construction and industrial activity, and during the downwards economic conditions in these industries, its operational and financial condition gets impacted. Moreover, around 36% of the LYTS’ net revenue in FY20 was concentrated in the petroleum/convenience store market and hence, any substantial change in this market can hurt its business.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LYTS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LYTS has increased by 18.07% in the last 1 week and is currently leaning towards the higher end of the 52-week range of USD 5.33 to USD 11.22. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 10.27. Considering the recent significant increase in the stock price, increase in the product portfolio, and no long-term debt, we recommend a “Hold” rating on the stock at the closing price of USD 9.54, up by 6.24% as of May 26, 2021.

* The reference data in this report has been partly sourced from REFINITIV.