We want to connect investors and consumers with fast growth, highly innovative sustainable companies.
Mike Appleby, sustainable and responsible investment (SRI) analyst at Alliance Trust Investments, explains why Dialight, which manufactures and sells LED lighting fixtures and appears in funds in Alliance Trust’s Sustainable Future range, is one good example.
What problem does the company uniquely solve and how does it solve it?
We inadvertently waste a lot of energy. Greenhouse gas emissions are rising and we need to look at ways of using energy more efficiently. Energy efficiency is an excellent way to save money by reducing energy bills as well as reducing emissions.
Dialight manufactures and distributes energy efficient LED lighting which is estimated by PG&E, California’s largest utility, to save as much as 50% of the energy of current normal lighting systems. LED lights also reduce maintenance costs as they last longer than conventional ones. The company saves customers money, cuts down on wasted energy and looks like a compelling business that benefits from their sustainable products.
Tell us more about how the company fits with the Alliance Trust Investments Sustainable Future investment ethos.
Most investment ideas come from looking at persistent trends, many of which are related to shifting to a more sustainable way of developing. We think sustainable companies that have good business fundamentals and are trading at undemanding valuations are the best investment opportunities. Dialight plc is a beneficiary of our climate change and energy efficiency investment theme.
Why would the company be an attractive investment for sustainable investors?
The product and service the company provides, energy efficient lighting, is likely to enjoy persistent demand which will support sales for this company that are significantly higher than the market. It is the positive sustainability characteristics of their products and services that will drive demand as customers reduce waste and save money.
The company has good business fundamentals and is trading on an undemanding valuation, given its expected secular growth. In a world where persistent growth is rare, this makes the company an interesting investment prospect.
How has it performed in investment terms?
Over the past five years, Dialight plc has outperformed the UK market as well as the electrical and electrical equipment index. Recent share price weakness in the second half of 2013 was mainly driven by disappointment in their obstruction lighting business and a slowdown of phenomenal revenue growth across its businesses.
We believe this is an overreaction by the market and the issues in the obstruction part of the business are largely resolved. We think this is a good opportunity to benefit from this investment theme at an undemanding valuation.
What’s the 10-year outlook for the company?
We believe the outlook for the company is good. Tapping into a relatively new market with low penetration rates, meaning the next three years are characterised by average sales and earnings growth of around 20% and 23% respectively which support the company increasing in value. This growth is slowing from the previous five years and will continue to slow but will remain higher than the market. We will be monitoring how the company performs as well as the competitive landscape to review our investment thesis and make sure it remains intact.
Any other comments about the company?
We think it is important to have a diversified portfolio exposed to a number of different investment themes. The Sustainable Future funds are exposed to many different investment themes such as: providing for unmet medical needs, education, fuel efficiency and safety standards in cars, improving local air quality, lower carbon energy generation, as well as healthy eating.
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For more about Alliance Trust, its Sustainable Future fund range and other sustainable companies it invests in, visit its website.