There can hardly be an industry with more certain growth prospects than LED lighting.
These semiconductor sources of light are so superior to traditional methods that rapid adoption is inevitable. The latest LEDs generate over 200 lumens per watt, superior to any other light source and over six times the 30 lumens/watt generated by the conventional halogen bulb.
That alone is a good reason to use LED lights. But they have several other attractions too. They can last up to 90,000 hours, removing the need to change light bulbs – which in the public sector at least always seems to be a remarkably expensive exercise.
This superior efficiency also makes LED lighting ‘green’. Today, lighting accounts for 19% of all electricity usage and creates as much harmful CO2 emissions as 70% of the world’s passenger car fleet. This makes lighting an easy target for governments, and all over the world regulators are stipulating the use of LEDs. The switch to LED lighting over the next decade will save the power generated by 559 full sized power stations and remove 8.4 billion tonnes of CO2 emissions.
The perspiring actors’ new best friend
The sheer efficiency and low lifecycle cost of LEDs would be enough to guarantee their adoption, but the attractions do not end there.
LEDs also offer better, controlled, lighting. They can be programmed to glow or dim and to change colour. By integrating them with sensors they can detect the level of natural light in a room and adjust their output accordingly. Lighting used to illuminate and colour buildings has spawned a new word – ‘architainment’.
And unlike halogen bulbs which dissipate a lot of energy in the generation of heat rather than light, LEDs remain cool. This can make a huge difference in environments such as films studios, where perspiring actors have traditionally struggled under hot spotlights to prevent their make-up from running down their face. On a film set, not only can LED lighting keep everybody cool but it can also allow filming to continue for longer by artificially extending the appearance of daylight.
With 37 billion light sockets globally, the lighting market is worth $70bn. JP Morgan reckons that half of the general illumination market will have converted to LED by 2015. This should be an excellent opportunity for investors.
I’ve found a penny share that could be a great play on this theme. To find out more, I travelled to Romsey in Hampshire to meet James McKenzie and Dr Majd Zoorob, founders of PhotonStar LED Group (PSL).
Is there too much competition for this thriving young business?
PhotonStar came on to AIM last year through a reverse take-over of the struggling LED specialist Enfis. This week, it has struck a deal that will provide it with extra manufacturing capacity in South Wales. In Romsey I found a small team assembling LED lighting fixtures and a business that is clearly thriving and anticipating rising demand.
McKenzie and Zoorob were early to spot the LED opportunity and have pitched their product at the high end of the market. They’ve gained the specification of designers for the new Cathay Pacific Lounge at Heathrow and the new Pet Spa (don’t ask!) at Harrods.
It is unusual to find an electronics assembly business in the UK. But PhotonStar seems to be bucking the trend by concentrating on quality. It is also benefiting from distrust of cheap and often unreliable LED fixtures sourced from the Far East.
The immediate outlook is good. Stock market investors are now giving PhotonStar the working capital that was denied by the banks last year. And Enfis is now pared back to concentrate on film and TV lighting as well as UV Curing (where light is used to dry adhesive or ink during the printing process).
Broker JM Finn is forecasting that a 2011 loss of £0.6m will become a 2012 profit of £1.6m. Yet PhotonStar LED is now valued at under £13m, so the shares look cheap. But I am not so sure.
The competition in this industry is fierce. McKenzie told me that when he attended Frankfurt’s big ‘Light + Build’ trade fair three years he was one of the few to be promoting LED lighting. In this year’s event, last month, there was hardly an exhibitor who was not displaying LED products.
For certain this is a growth industry but it is already fiercely competitive. The big boys like Phillips and Osram are determined to protect their market share. Investors should look for growing industries – but if there are few barriers to entry, they should be wary too.
Where I see the real opportunities…
Of course lighting isn’t the only industry enjoying enormous growth at the moment. This year I’ve been telling you about the hugely promising renaissance in UK manufacturing. I’ve talked about internet security, rare earths and the string of opportunities in the downtrodden biotechnology sectors.
Readers of my Red Hot Penny Shares letter have been plugged into these stories for months now. I’ve tried to identify companies that are selling into huge potential markets. But I prefer to get in early on these stories – that way I can find stocks that won’t get chewed up by competition.
That takes a lot of research and a lot of travel. But there is a buzz in finding growth stories – like LED lighting – before investors, analysts and competitors are swarming all over them.
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