Stockwatch: an electrifying small-cap with upside potential

News of a highly capable incoming CEO at small-cap electrical equipment manufacturer Luceco (LSE:LUCE) reminds me what I have been missing this year, with its shares soaring from 132p to 225p, even reaching 290p in June on the back of strong demand for its electric vehicle (EV) charging products.

This £362 million small cap has a rather volatile history linked to boom/bust patterns in its products, especially during Covid and its aftermath when home improvements surged but led to a glut of inventory that impacted margin and revenue. 

The episode also exposed another key risk by way of Luceco’s reliance on its principal and vertically integrated factory in Jiaxing, China, close to Shanghai.

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Sceptics might also say, after floating in 2016 at 130p and soon testing 270p, that the last decade has affirmed the shares as those chiefly to trade in the short to medium term, rather than hold.

For such reasons, Luceco drifted off my radar and probably many others’ too, explaining why at 225p it trades only on near 13x expected 2026 earnings per share (EPS) – despite 21% growth anticipated. I suspect upside potential remains however, given the momentum implied by two consecutive profit outlook upgrades this year. 

Barring an economic slump if oil goes a lot higher with the Strait of Hormuz remaining shut, that could mean 10% EPS growth pencilled in for 2027 is also beaten, hence that price/earnings (PE) currently could be close to single figures.

It seems a modest rating considering that 2025 was already a strong performance with 12% to 20% growth in adjusted profitability measures on revenue up 12%, the reported profit numbers up 31% at the pre-tax level and 42% for basic EPS. The adjusted operating margin rose from 12.0% to 12.5% and the total dividend by 20% to 6.0p with 2.5x cover by normalised EPS.

Into this situation arrives Thorsten Müller from Halma (LSE:HLMA), where he was CEO of its safety division, having previously held senior roles at ABB, Osram and Bosch. Müller offers a proven track record of delivering growth and innovation at industry-leading companies in the lighting, electrification and energy management sectors. Luceco’s chair describes him as “having the skills needed to drive the group’s strategy for compound growth”.

Not that John Hornby, the retiring CEO of 21 years, has faults, but there is an interesting comparison for the years ahead with small-cap polymer group Victrex (LSE:VCT), where a new CEO believes that more effective management can drive medium-term improvements in profitability. Presently this defies the sceptics who say that Victrex is losing out in a more competitive market, leaving it lower-margin work than higher, such as medical applications.

Can this new CEO at Luceco similarly mitigate some of the company’s inherent risks rather than it being chiefly at the mercy of global events? Irrespectively, it offers the chance for a thorough review and possible fresh actions beneficial to value.

A bullish ‘bowl’ pattern emerging in the chart

On a five-year view this can appear so:

Source: TradingView. Past performance is not a guide to future performance.

There was, however, a terrific roller coaster from around 100p to 485p in August 2021, which slid back as low as 72p by October 2022, then a sideways-volatile trend that persisted to 130p at the end of 2025. So, it is quite early days for re-rating Luceco as a genuine growth company on the back of strong demand for “energy transition” products.

I would not underestimate this, despite mixed sentiment towards EVs and a difficult outlook for the construction industry, with the UK constituting around 80% of group revenue. There is also a decent spread of international revenues as a platform to build on: chiefly Europe and the US followed by the Middle East and Africa, albeit Asia Pacific at just 1%.

Wiring accessories and LED lighting still constitute around 77% of group revenue, hence construction and home improvement (reliant on mortgage debt and/or disposable income), although portable power should increase its share given EV chargers grew 85% last year.

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You need not be a fan of Ed Miliband’s eulogising on clean energy to recognise a sea change under way that Luceco’s new CEO can capitalise on. When you combine this with Luceco’s attractive micro-economics and 2026 upgrades, it becomes possible to see why an emerging “bowl” on the chart could continue to extend with the shares rising.

A sound financial base conflates with this electrification trend

Luceco has a decent set-up: clean earnings with scant difference between reported and normalised earnings (see table). While the 11-year table shows a moderate trebling of revenue to a still quite small annual figure, there is strong conversion of operating profit to cash and modest capital expenditure needs, hence modest net debt near £70 million cited in a latest update. Operating margins are respectable despite slumps in 2018 and 2022.

Luceco - financial summary
year-end 31 Dec

It was in February 2018 that I first drew attention to Luceco as a speculative “buy” at 90p targeting at least 130p given the company’s strong market positions and cash-flow strengths. The post-Brexit UK economy complicated this however, with a £3.1 million first-half 2018 operating loss on flat turnover of £75 million as adverse exchange rates conflated with retail decline.

The shares fell as low as 35p by year-end, a turning point I missed, but my 130p target was still achieved by June 2019. I maintained a “buy” stance at 110p that November and while vindicated by a rally to 486p by August 2021, it chiefly followed from lockdown spending.

A 28 July, first-half 2026 trading update has cited 13% year-on-year revenue growth driven by 120% growth in the “energy transition” segment (EV chargers and demand flexibility systems) alongside 6% in core products, which seems respectable given the challenges for construction and home improvements lately.

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With adjusted operating profit up 14% to £15.8 million and the margin 11.1%, 2026 operating profit was guided up from £33.8 million over £40 million and the 2027 scenario said to also likely beat expectations.

Barring another energy price shock from September onwards, with the US and Iran locked in stalemate, it is hard to see what could disrupt this.

Contrasts within recent directors’ dealings

Towards the end of last May, Luceco’s chair sold £6.1 million worth of shares at 268.5p and the retiring CEO £3.0 million worth at 269p; this countered by the CFO of seven years buying £50,000 worth at 266p in mid-June.

Convention would suggest taking more notice of CFOs given they are less well-paid than CEOs but have their fingers on the group financial pulse.

The retiring CEO does also retain 25 million shares, or 15.6%, and the chair nine million shares, or 5.6%. A non-executive director bought £10,000 worth at 270p in early July.

It will be interesting to see what performance criteria are attached to any share options awarded to the new CEO, and if these include share price targets.

All five brokers following Luceco rate it as a ‘strong buy’

You might say that its story is not unknown, so why act now, especially if there is a major risk to the economy? On the other hand another bout of energy price crises would focus attention on the need to move more swiftly towards electrification.

Structural demand for EV charging is likely to increase even if uptake of electric vehicles continues only steadily. The UK mirrors global sales with 23% to 27% of monthly new vehicle registrations constituting EVs versus a 25% median generally, driven by increased model availability and tightening emissions mandates.

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I concede to a “fear of missing out” in being late to the 2026 party and needing to recover the marker I put down on this share eight years ago. 

Yes, there are near-term macro risks but the major trend to electrification and a strong new CEO lead me to a “buy” stance on the classic two- to five-year investment view.

Edmond Jackson is a freelance contributor and not a direct employee of interactive investor.