DIA – Dialight disappoints

Shares in DIA (Dialight) fell 30.6% today to 516.8p after issuing its trading update, stating:

… the Board expects that underlying operating profit for 2015 will be significantly below expectations and that the results for the first half will be less than the prior year. The Board believes that this reduction in orders is linked in part to a slowdown in the oil and gas sector. … the new Group Chief Executive, is leading a strategic review of the business. This review will focus will on the markets in which the Group currently operates, together with an attendant review of its operations, supply chain, and product development.

It sounds that there may be serious problems ahead. What I find curious is the use of the word “believes”.

I’m pretty sure that I invested in DIA a few years ago, although I have not checked my records to see if I made a profit or loss. If I had to guess, I’d say it was a loss.

Anyway, what I find fascinating about all this is the fact that sales of lights to the oil and gas sector was, back then, thought to be a major driver of growth. Fast-forward to today, and it is now posited as a source of decline. It just goes to show that investing is a funny old game, and that, ultimately, the future is inherently uncertain. You can never be sure of anything, and it does favour arguments of investing mechanically.

I took a look at the cashflow statements reported on Stockopedia (http://www.stockopedia.com/). What I found was quite surprising. Cash from operating activities was 9.42m for y/e 31-Dec-2009. It actually declined to 5.30m for y/e 31-Dec-2014. Given that DIA is supposed to be a growth stock, I found that to be noteworthy.

Whilst it is true that cashflows can be subject to all kinds of distortions, you can see that the average operating cashflows for 2009 and 2010 were 9.38m, whilst for 2013 and 2014 they were 4.95m. So, on the face of it, someone might have looked at the historical information and puzzled as to what was really going on. Hindsight is a wonderful thing, of course, and there’s no way to rule out that it was some kind of fluke.

There seems to be a lot of blow-up stocks lately. I wonder if it means anything?

May you all be well.


Update 10-Jun-2015: I just noticed this on the ADVFN board which I thought was worth sharing … poster “PUGUGLY” wrote on 15-Apr-2015 “the Group’s operating profits will be weighted towards the second half” and offers “A strong indication (imo) that 1st half profits will be below expectations”, “Or am I too much of a cynic?”. We now the answer to that question: no, the call was indeed prescient.

Paul Scott’s Stockopedia artcile on 02-Mar-2015 also picks up on a few negatives: CEO change, inventory writedowns and aggressive accounting policies. He also considers valuation to “look pretty full, and don’t factor in any downside risk”. Paul disclosed a long position at the time, and said that he quite liked the stock.

Paul writes today that it now looks permanently damaged.


About mcturra2000

Computer programmer living in Scotland.
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One Response to DIA – Dialight disappoints

  1. red says:

    “You can never be sure of anything, and it does favour arguments of investing mechanically”

    Three “takeaways”, imo:

    1) Never pay for growth;

    2) Once in, get out when the growth premium is substantial in the face of end market deterioration/deceleration (use comparables — oil service Cos like John Wood – as a guide )

    3) it is quasi-mechanical investing of the “high ROIC = good company” variety which led so many funds to pile into, stick with, and today scamper out of, this ticker. Trace the history of any of these recent blow ups and you’ll see the footprints of UK/Eurofunds with “quality” and “growth” in their names — companies — scratch that — historical financial statements like these are EASY to write up upon purchase and, when they blow up, it is easy to disclaim responsibility for their failure.

    4) “You can never be sure of anything”. True, and that applies equally to mechanical investing. Mechanical investing doesn’t eliminate uncertainty, it hides it. It is also easy to market.

    apologies for the length of the comment

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