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LST share price lags despite uptick in revenue


Light Science Technologies [AIM:LST] the AIM-listed, Derby-based producer of horticulturally-focused lighting and monitoring solutions published its final results for the year ended 30th November 2022 earlier this week.

Simon Deacon, chief executive spoke to The Armchair Trader. He said: “Business has been tough in 2022, but we still managed to grow by just over 10.5% in the year. Given the challenges we are pleased to have maintained our forward momentum.”

As previously reported, LST manufactures lighting and electronic controls for the controlled-environment-agriculture sector, which includes hydroponic and vertical farms, and commercial greenhouses and polytunnels engaged in food production and horticulture. Listed in 2021, the company originated in a UK contract electronics firm, UK Circuits before diversifying into the manufacture of horticultural management systems.

Revenues and loss up

In this set of results LST reported revenue growth of 10.5% to GBP8.2m, up from GBP7.4m in 2021. However, the manufacturer saw its margins reduced to 17.7%, down from 22.2% in 2021 and reported a loss before tax of GBP2.7m, a 15.75% increase on the loss made the year previously.

“The [controlled agriculture] sector has been in something of a stop, wait, see cycle. Many of our potential clients who were planning on installing new equipment stopped their investments to see what was going to happen in the economy,” said Deacon.

Nevertheless, LST still has a forward order book of USD19m, marginally higher than nine months ago  and according to Deacon is making good progress in expanding its market coverage in North America.

“We’re hoping to expand [in the US and Canada] through partnership and alliance with existing [controlled agriculture] suppliers: companies that provide glasshouses or irrigation systems,” the CEO said.

Bigger ticket

He explained that the scale of agriculture in North America was much larger than in Europe or the UK. The company is negotiating installing a system for a North American tomato-grower that has four mega-glasshouses that cover a 100-acre area at one site. “In North America, there are two things that are very different to the industry in Europe and the UK. First, producers aren’t grappling with the same energy [cost] issues that farmers this side of the Atlantic are. Second, the trend of growing food close to where it is consumed (unlike in Europe where we fly in different commodities from all over the continent) is growing [for ethical and economic reasons],” Deacon said.

The scale of business that could be developed in North America for LST puts its European business into shade.

However, on the lighting and irrigation systems side of the business, for the time being Europe and UK remains the core market. In Europe, the War in Ukraine caused a massive spike in energy prices across the continent. Previously growers were paying 8p/kilowatt hour (kWh) to 11p/kWh for electricity, now they are paying closer to 40p/kWh, said Deacon. Twinned with a rise in the cost of fertilizers many famers across the continent have not been going into production, as with the current costs of inputs and energy, it is uneconomic – at existing wholesale prices – to invest into a crop.

Food shortage

The result has been that many farmers have been mothballing facilities and not seeding their polytunnels and holding back on investment. This has led to noticeable shortfalls in the supply of fresh produce to retailers, leading to empty shelves in supermarkets, especially in the UK.

However, this has proved double-edged sword for LST. Previously the firm’s equipment was used by growers to increase crop yields – managing optimal lighting, irrigation and feeding of plants in the ground. With the current high price of energy and inputs, now many farmers are using LST equipment to manage costs, deploying the technology to ensure just the right amount of heating, water, and nutrition.

LST has also been experimenting with hybrid product offerings – the main system, installed with solar panels and batteries – so that the grower can take advantage of the sun not only to grow crops, but to power operations.

Government support

Deacon, as previously reported, is a big advocate of the UK becoming more self-sufficient in terms of the food it can grow, and less reliant on imports. “We can grow here [the UK] all-year round and become a lot more self-sufficient. There’s no reason not to…” said Deacon. However, he said, the government needs to urgently intervene with support and regulation to help the UK agricultural industry.

The contract electronics side of the business has had a strong year, said Deacon, and “the UK manufacturing sector has come back with a lot more reassurance.” LST manufactures bespoke circuit boards that are used in pest control, heating and security systems.

The company is also investing in its R&D, testing newer AI systems on its cloche products that analyse real-time, open-source data to optimise yields. “One day we hope that growers will be able to sell crops that they are growing whilst they are still in the ground,” currently farmers grow their crops then cut and harvest before marketing. As time advances the value per kilo decreases at an increasing rate as the crops get less fresh.

Deacon is still unhappy at where the shares are pricing. The manufacturer did complete a GBP1.59m retail subscription recently, the proceeds of which were used for working capital purposes and continued product development and intellectual property protection.

“We’re a bit disappointed [at the share price]. We’ve been on the market for 18 months, but have a business with a track record of more than 25-years in the company. I understand the affect of market conditions and our newsflow. But 2023/24 is when we’ll see the real benefit of the work we’ve put in and we’ll become cash-generative. We have a product that we’re getting into some significant sites – we’re now working on getting our overheads down and hope the share price will soon begin the reflect the company’s progress.”

The company’s shares opened trading on 3rd May at 1.28p and was down to 1.22p by lunch. LST’s shares have tracked in the range of 1p to 14.2p over a 52-week period. The company was listed in October 2021. LST has offered a year-to-date return of -68.3% and a one-year return of -91.2% giving the company a market capitalisation of GBP4.25m.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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