I purchased Signify NV - Stock code is LIGHT at Amsterdam Stock Exchange (AMS) - at €20.74 per share on 30 May 2016. On 31 January 2020, I sold at €30.00 per share. Taking account growing dividend, the absolute profit is 50.09%.
About LIGHT
I was researching the lighting market with minimal leg works. I learnt that the many stores in Singapore allocate huge shelf space for the lightings under Philips brand. I also use this brand for my own lighting at home.
It was originally subsidiary company of Royal Philips and its original name was Philips Lighting In 2016, the parent company began to spin off its subsidiaries. I was so glad that Philips Lighting is among the candidates for its spin-off program.
When I finish the research of that market in few years earlier than the announced spin-off news, I could see myself buying stocks of Royal Philips. It was the same reason for me with Fiat Automobile NV and Ferrari NV.
By the time it was listed in AMS, its company was Philips Lighting NV. With respect to brand name of Philips, LIGHT elect to rename it to Signify NV in around 4 years later from when it was spin-ed off. You would noticed that there was a disclaimer in the list of possible risks in the prospectus that it is possible for LIGHT to pay royalty fee to its former parent company for the brand name of Philips.
Rationale of Investing in LIGHT
I believe that there will be gradually and inevitable shift from the conventional lightings to LED lighting. It is reasonable that LIGHT should benefit from this shift with its ability to distribute its product to many products and its recognized brand.
As we held LIGHT, upon constant reading, I saw more possibilities:
1. Lighting is used to grow plants organically in the climate room.
2. Internet of things (IoT) is employed to switch off the lightings
3. LiFi, alternative to WiFi, required to have LED lighting and modem to distribute internet within the room as the Li-fi wave does not penetrate through the wall for better security.
4. It is possible to change colours or brightness with one LED light with one switch.
With these possibilities, there is good chance that LIGHT can be a compounder if it can induce the potential users to do at least 2 out of 4 above points.
Happenings During Our Holding Period
My vision of the shift from conventional lighting to LED lighting is correct. LED division grew its sales from €1,518 million in 2016 to €1,812 million in 2018 while Lamp division decrease its sales from €2,333 million in 2016 to €1,428 million in 2018.
LIGHT did very good job to get corporate customers to install its lighting in their own buildings – its professional division remains the cash cow for LIGHT.
LIGHT made few acquisitions - https://www.signify.com/global/our-company/investors/acquisitions
LIGHT also is finding way to monetise LiFi technology but, to my naked eyes, it doesn’t make any headway at all.
LIGHT is the industry leader in the electrical components category in Dow Jones Sustainability index for 3 consecutive years.
Rationale of Selling LIGHT
Checking the results of abovementioned 4 points, I found as follows:
1. City farming don’t take off very fast. It is in slow progress but positive one.
2. Residential consumers, in the current generation, appears to be less keen to purchase Philips lightings that can be used for IoT.
3. Laptop and tablet manufacturers are not adding LiFI module in their own products. It is not easy to find LiFI moduled routers in any common computer shop.
4. There is strong demand for lightings with different colours or different brightness level.
I looked at top line of segment performance – it is surprisingly disappointing. In 2016, Professional, and Lamps made 1st and 2nd largest segment sales. In 2018, Professional and LED made 1st and 2nd largest segment sales. As this is expected based on their executed business plan, Lamps sales decreased by €905 million and LED sales increased by €294 million. On the aggregate level, the group sales decreased from €7,465 million in 2015 to €6,358 million in 2018.
In 2018, my family finally made a switch from conventional lighting to LED lighting and by 2019, my home is fully lighted by LED technology. Because of that, I realized that LIGHT did not secure its biggest share of LED lighting market. All LED lightings, I have in my home, aren’t from Philips/Signify. Then again, I cannot certain whether Signify does make OEM and sell them to 3rd party customers under no brand name.
Putting them together, the business performance is not impressive in 2019. By then, I am ready to sell it when it hits €30 per share. It happens only when Signify announced its 4Q 2019 and full year result. If you look at full year 2019 sales, its sales declined to €6,247 million (LED division grew its sales to €1,891million.)
Although it is impressive to increase dividend per share consecutively since spin-off, declining sales don’t look good to me together with slow growing sales of LED division.
Therefore, it is far better to sell it and keep Euro cash for future stock investment.
Aftermath of Sale of LIGHT stock
I kept it in my watchlist. Unfortunately, my attention went to US stock research and missed the bargain opportunity during COVID-19.
Time will tell if I am wrong with my rationale of selling LIGHT. As of 25 December 2020, €34.78 per share, the closing price at 24 December 2020, doesn't make me sad. I have to see how it panned out in next 5 years.
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