LED company is ready to light the way

By Joanne Hart for The Mail on Sunday
Updated: 06:35 EDT, 29 December 2010

Ireland is in dire straits and countries such as Spain and Portugal are on pretty shaky ground too but in America, the mood is more upbeat.

News that President Obama is extending tax cuts introduced by his predecessor George W. Bush lifted sentiment not there, leaving British brokers unsure whether to adopt European doom and gloom or US cheer.

Many chose both so, earlier in the week, optimism dominated the market and, as the week wore on, defensive shares gained popularity.

Smaller, riskier stocks can find it hard in this environment but some should make the mark on fundamental grounds, if not immediately, then over the coming year or two.

Enfis (Now called PhotonStar)

Ticker: PSL (Aim market)

Contact: 01792 485660 or enfis.com

*Update* Enfis changed its name to PhotonStar LED Group plc on 24 December 2010 after a reverse takeover. Its ticker code is now PSL. For 'Enfis' below, read 'PhotonStar'.

Enfis falls firmly into this category. A small, Aim stock, the company has yet to make a profit and was founded less than ten years ago.

But it is involved in a sector that should take off over the next decade and has recently undergone a transformational acquisition which should significantly improve its chances of success.

Enfis is a pioneer in the field of LED lighting, which accounts for a fraction of all lighting today but is forecast to make up more than 50 per cent of new light sales by 2015.

LED lighting is radically different from conventional lights because it works via semi-conductor chips rather than bulbs.

It is therefore much more hard-wearing and far cheaper to run. On average, an LED light will last between three and five years and is between five and 15 times more efficient than conventional lights, even low-energy bulbs.

LED lights are also far more adaptable than their ordinary peers. Not only can they be dimmed or brightened at the touch of a switch, but they can change colour too, enabling users to alter the mood of their home or business in an instant.

Bright light: LEDs are much more hard-wearing and far cheaper to run

The lights are already in use at smart hotels and restaurants, some upmarket boutiques and a number of sophisticated entertainment venues and design-orientated businesses. But their appeal has so far been limited for one simple reason: cost.

LED lighting is much cheaper once it is in place but the initial outlay is considerably more expensive than conventional bulbs.

Times are changing however. Like all new technology, the costs are coming down even as efficiency and effectiveness increase. And efficiency is particularly relevant.

Lighting accounts for nearly 20 per cent of global electricity usage and CO2 emissions from lights are equivalent to 70 per cent of the emissions made by cars worldwide.

In other words, turning the lights on makes a material contribution to climate change and governments around the world are looking for alternatives, such as LED technology.

To date, Enfis has focused on highly-technical areas of the LED world, such as film and TV production, architectural and even specialised medical lighting.

But last month, the company announced the acquisition of fellow LED developer, PhotonStar, through a reverse takeover, following which PhotonStar founder James McKenzie will become chief executive of the combined group while Enfis boss Ceri Jones takes the position of finance director.

PhotonStar operates in slightly less rarefied sectors than Enfis and is actively working to create cheaper, more accessible LED products. Brokers expect the combined group to deliver profits of around £1.5 million by 2012 but growth could develop rapidly after that.

Many early-stage companies suffer from cash-flow problems but the PhotonStar deal was accompanied by a share placing to raise £1.9 million which should see the new, enlarged business through to profitability.

The company also benefits from a considerable number of customer orders and both McKenzie and Jones are optimistic about the future.

Midas verdict: Enfis chairman is Drew Nelson, chief executive of semi-conductor group IQE. Midas Extra recommended IQE in October 2008 when the shares were 12.5p.

Today, they are 45p so Nelson has clearly made huge strides in the past two years. Enfis and IQE are both headquartered in Wales and Nelson's presence on the Enfis board gives confidence.

The company's underlying business strategy also makes eminent sense. This is not a stock for the faint-hearted. But for those with an appetite for adventure, it could prove extremely rewarding.