Luminar Annual Results

I bought Luminar back in early 2010 as a turn-around play on the assumption that if (IF) it survived then it might return to average earnings at an average PE, which might be something like 40p and 7 respectively, giving a potential share price of 280p.  Currently they’re around 9p and I bought at an average of 34p.  Yes, obviously that makes me look pretty stupid and with hindsight I’d agree.

For those who don’t know, Luminar is the UK’s leading nightclub operator and has debts of £90M, which isn’t huge but it is if you keep losing money as the yoof of today are either unemployed or up to their eyes in student debts or both and have little desire for a big night out.  When they do it involves a six pack of something cheap from Tesco.  The company is responding by getting the ‘experience’ right for their market, selling off loss making units and opening up the clubs (for comedy clubs and other such things) at times when they would normally be closed.

With the latest annual report I can’t even attempt a sensible share price projection since the company as it stands now a) might not even exist a year from now and b) is constantly shrinking so comparisons with the past are hard to say the least.

However, the banks are being nice for now so I will assume, perhaps foolishly, that they are still a going concern and therefore I won’t sell out just yet.  That still leaves the problem of working out a target price, although ‘work out’ should probably be replaced with ‘make up’.

The earnings per share over the last decade have averaged around 40p.  The company as it stands now has 77 clubs compared to 296 in 2002.  In 2002 the company earned 61p per share, which is 0.2p per club.  With 77 clubs that’s about 16p.  At a PE of 7 this gives a share price of about 111p as a ball park guess of what Luminar might trade for, IF they survive and IF they maintain something like 77 clubs and IF the clubs are broadly as profitable as in 2002 (in nominal rather than real terms).

With a ‘rational’ (?!?) share price of 111p expected at some point in the next 5 or so years, I want a minimum 50% upside, i.e. if the shares get within 50% of the expected price then I’ll sell since I want more bang for my buck than that.  This means the target price would be 74p which is the price I will sell at (until the next annual report turns up and I revalue the company).

As of now I expect to be an ex-Luminar holder when either the company goes bust or when the shares reach 74p, one of which looks more likely than the other.  I’ll leave it to you to work out which.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

2 thoughts on “Luminar Annual Results”

  1. I remember thinking at the time you took the plunge that it was a brave decision. I even put the ruler over luminar myself at that time but decided not to go for it. Value investing is as much a mental discipline as anything and the time that you most want to bail out is usually the time when you really shouldn't. Hang in there and good luck. Jon

  2. Hi JonI must admit that Luminar was about as close to prudent investing as a trip to the local casino. You're right that as long as you still believe in the original idea you should stick with it, no matter how scary. I don't think this is something I'll be doing again though.

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