Zumtobel Turns LED into Dividends

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by Debra Fiakas CFA

Based on Austria, Zumtobel Group (ZMTBF:  OTC or ZAG:  Vienna) is a supplier of modern lighting products using Light Emitting Diode (LED) technology.  Zumtobel sells its lights and components under three international brands Thorn, Tridonic and Zumtobel and two regional brands ACDC and Reiss.  Zumtobel has a long history in lighting with its foundation in the 1950s in Dr. Zumtobel’s Electrogerate und Kunstharzpresswerk.  The Thorn brand, which was acquired in 2000, dates back to the 1920s when founder Jules Thorn set up the Electric Lamp Service Company. 

Zumtobel sells lights in over 90 countries and its sells a lot of lights.  The company’s lighting products can be used both indoors and outdoors.    Revenue has grown in each of the last four fiscal years.  In the twelve months ending June 2015, revenue was Euros 1.3 billion, providing Euros 66.5 million in operating income.  That represents cash earnings profit margin of 5.1%, well above the 3.8% profit margin recorded in the prior year. 

The company did not enter the race to LED lights until 2001, but the technology has been a winning proposition for Zumtobel.  LED products provided more than 50% of the company’s revenue in the last fiscal year.

The LED segment of the lighting market is large and growing.  In June 2015, industry research firm ResearchMoz issued a forecast of 45% compound annual growth for LED lighting and a market size of US$42 billion by 2019.  LED lights use only a fraction of the energy required to drive an incandescent light bulb.  As a consequence LED lights produce 90% less heat.  Most importantly, LED lights offer a lifetime of 50,000 hours of illumination.  Mix long life and low cost of use, the resulting value proposition is hard to resist for either homeowners or businesses.  Suppliers of LED lighting get support from electric utilities which often advocate switching from conventional bulbs to LED in order to create efficiencies in electricity usage.

Zumtobel has some competition in the LED light market.  There are over 150 different LED lighting systems offered around the world today.  The proliferation in LED bulbs and lamp styles has helped draw new customers to the technology.  The result has been decreases in production cost and more competitive pricing.  According to Statistica, LED is expected to reach a 53% penetration level of the global lighting market.

Investors should be attracted to Zumtobel for its building profitability.  The company’s dividend of Euros 0.22 per share and dividend yield of 1.1% are good reasons fall in love.  Granted the price-earnings multiple of 55.6 times trailing earnings for ZAG might sour the relationship, but that multiple seems more palatable against the company’s secure foothold in a large and growing market

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 


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