This is not research, it is not a buy list, and these are not recommendations. Clients with an advisory mandate in place with LGB may contact us for opinions on the companies mentioned here. Please note that LGB has received fees from some of the companies mentioned in connection with equity and debt placings, and LGB directors and staff may hold positions in them.

Light Science Technologies Holdings plc (LST)

Light Science Technologies designs, procures, and manufactures contract electronics manufacturing products. It offers printed circuit boards, used in various sectors, including audio, automotive, electronics, gas detection, lighting, and pest control. The company was incorporated in 2020 and is headquartered in Derby.

 

https://lightsciencetech.com/

Investment Case

LST is developing and marketing advanced lighting and sensors to improve the energy efficiency of vegetables growing under cover. It was formed from an existing electronics assembly business, adding expertise in plant health and nutrition. The September 2023 Tomtech acquisition widened their product offering in horticulture and floriculture and brought them skilled staff and an established client base. However the original proposition has not yet shown the growth that was hoped having been tripped up initially by the energy price rises post the Ukraine invasion that stopped investment by their potential customers.

The Injecta purchase in November 2023 created a third division for “passive fire protection”. The company has said that the fire safety market in the UK, which has been galvanised by legislation following the Grenfell fire, is potentially worth £50bn though obviously they are only addressing a part of that. Almost 500 buildings were found to have the same cladding as the Grenfell tower, to give one example. They need to add new pumps to grow this business, but the costs (c. £30,000) are modest vs the potential revenues. There are over 11,000 buildings in the UK which have been identified as representing a “critical risk” and which require remediation.

Long-term sectoral transformation in indoor farming is necessary to meet the UN sustainability goals, with modernising farming practices, reducing energy and other inputs, reducing environmental impacts (including food miles) and increasing productivity all government priorities in the UK (as witnessed by the March grant- but we shall need to see if the new administration continues to be committed). However, current revenues (£375,000 to May) indicate that this remains potential rather than actual business. The intention is to sign up more international distributors- a start has been made with South Africa.

The original UK Circuits business (CEM) is probably large enough to justify a significant proportion of the current market cap on its own: the business it most closely resembles is AIM-listed Solid State (at an earlier stage of Solid State’s growth)- and like Solid State is vulnerable to large customer order patterns and changes in procurement.

Management subscribed for part of the most recent raise and own about 30% of the company. In early March the company appointed Dr Graham Cooley, who ran the fuel cell company ITM for some years, as Non-Executive Chairman, replacing the previous incumbent, and also replaced one of the non-executive directors. Cooley has built up a 7.12% stake in the company. The company has been using bank debt to help finance growth.

The company has not provided any guidance for 2025 and their brokers, Oberon, have not published forecasts. The company has however said that “as management continues to rebalance the business and cost base, the combination of growth outside of the pest control market within the CEM division with further strong contributions from PFP and CEA and improving margins, is expected to offset the effect of any potential revenue reduction. As such, management is confident that the business remains well placed to achieve continued growth and its objectives of net profitability and being operationally self-funded.”

At the current 2.3p the market cap (£8m) is less than 1x the main division’s sales and the potential of the fire business looks as if it is in the price for nothing, however the uncertaintly over the Rentokil business will be a cloud over the share price. Simon Deacon’s long term objective is to grow the business to a £100m turnover.

Recent Developments

Last Updated: 04/12/2024

LST released a trading update for the year on 4 December, noting that Group revenue increased by approximately 29% to c.£12.0m for the Period (2023: £9.3m), underpinned by strong trading across all divisions. Gross margins grew to c.28.0% (2023: 23.4%), with losses for the Period reducing substantially to c.£0.2m (2023: £1.1m loss). Group cash at the end of the Period was an improved c.£1.2m (H1 2024: £1.1m) with additional undrawn funds availability of c.£0.7m (H1 2024: £0.5m) ….. Importantly, the business was net profitable during H2 2024, and management is expecting to sustain this momentum in FY 2025.”

The core CEM (components) division grew 5% implying that business apart from the sports entertainment supplies was probably down a little, and the company said that their business from Rentokil, their largest customer (accounting for c 60% of revenues over the last four years) is uncertain as it is ending production of one of the products that LST supplies components for. The original horticultural lighting finally showed some signs of life, with £800,000 of revenues (up 250% yoy) and the new fire protection business contributed £1.8m of sales after £300,000 in H1. This is probably where most growth can be expected from at the moment- in October LST announced a further order from a construction services company based in Manchester for £1.17m to be completed in H1 2025, a follow-on from a £620,000 order from the same customer. In August we were told that the Fire Protection business had a quoted pipeline of £6.9m and had invested in a third pump to handle potential demand.

We last met CEO & founder Simon Deacon and CEO Jim Snooks on 6 August after H1 results to May were released and will be seeing the company on 10 December.