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Light Science Shares, LST, Drop 32% On Trading Update – Where Now?

Tim Worstall
Tim Worstall trader
Updated 10 Jun 2022

Trade Light Sciences Shares Your Capital Is At Risk

Key points:

  • Light Sciences announces trading update – not good
  • A likely £2 million loss on revenues 35% below expectations
  • But is this a blip or a hole in the business model?

Light Science Holdings (LON: LST) shares have dropped 32% for far this morning on the back of their trading update. The LST share price fall is basically because the update is a shocker. Light Science is now back down below its IPO price back last October – this isn't what we would hope for from a company in that bright new dawn of controlled environment agriculture, and so on.

More specifically, the results are now for a prediction of a £2 million loss in this current year. This is a result of their expectation that revenues will be 35% down to Nov 2022 over the previous trading period.

Light Science does assure us that this isn't because there's anything wrong with their sales sign ups, or the market sector. It's just proving very hard to get the money out of people – getting growers to really commit to spending money that is, this isn't a comment about bad debts.

So, we're told that the work pipeline is £60 million, of which forward orers are some £18 million. Which is great. But then comes the but – which is that the whole process of getting people to actually commit is now taking much longer. Government grants take longer to come through, growers are facing rising cost pressures so are less willing to commit to capital expenditures and so on.

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At which point it's possible to take one of two differing views on the future of Light Sciences. One line of thought is that this is merely a blip brought on by hard economic times. Controlled agriculture – that whole under grow lights, urban agriculture, hydroponics and so on thing – is clearly the wave of the future and things will get back on track soon enough. So, it's a blip, we can expect to see Light Sciences shares recover as this becomes apparent.

The other line of thought is gloomier for Light Sciences. If growers are facing cost pressures then they should – should – be willing to invest heavily in reducing their own costs. That they're not willing to spend on Light Sciences' installations might indicate that this doesn't, in fact, reduce costs. That is, that the whole grow lights and so on idea is a fashion, a phase perhaps, but it's not actually a cost effective method of feeding the people. There is possible merit to this idea as well. More than one economist has questioned why you'd try to grow food on expensive urban land when it can be grown on cheap rural land instead.

Now, which way this actually runs has to be, at present, a matter of opinion. But that is going to be the opinion that will determine trading stances. This is a blip cause by economic bad times? Or this is a hole in the business sector case that is being exposed by those economic hard times?

A decision on that, well, that has to be the trader's decision. But it is worth noting those opinions of agricultural economists. Rural land is cheap so why would we go off and grow food on expensive land?

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.