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UPDATE 1-Osram shares turn positive as market looks beyond 2018
November 7, 2017 / 10:48 AM / 17 days ago

UPDATE 1-Osram shares turn positive as market looks beyond 2018

* 2018 forecast for flat core profit seen as unambitious

* Kulim ramp-up, R&D, currency to cost triple-digit amount

* Shares turn positive after dropping more than 4 pct (Updates shares, adds CEO, analyst comments, background on Kulim plant)

FRANKFURT, Nov 7 (Reuters) - Shares in German lighting maker Osram turned positive on Tuesday as the market looked beyond the group’s modest 2018 forecast to its plans for future growth as a technology company.

Osram reported full-year results late on Monday that broadly met expectations but its 2018 forecast was seen as unambitious, predicting flat core profit and a 5.5 to 7.5 percent sales increase.

“This is placing current consensus at the top end of the guidance for growth,” wrote Morgan Stanley analyst Lucia Carrier, keeping her “underweight” rating on the stock.

Osram shares fell more than 4 percent before rebounding to trade 2.9 percent higher by 0956 GMT.

The Munich-based company said a ramp-up of its state-of-the-art LED factory in Kulim, Malaysia, research and development expenses and negative exchange-rate effects may cost it hundreds of euros next year.

Osram also announced a joint venture with German high-tech automotive supplier Continental to develop lighting products for the car industry.

“We are quite consciously putting our hand in our pocket to fund our development,” Chief Executive Olaf Berlien told a news conference. “The alternative would have been large acquisitions at inflated prices.”

Berlien is seeking to transform Osram from a lightbulb maker into a technology group that builds chips, provides digital lighting systems and supplies an increasing density of sensors and other components for smart cars.

The direction in which he is taking the company has not always been appreciated by the market: Berlien’s announcement of the new billion-euro ($1.2 billion) LED factory cost Osram 28 percent of its market value in a single day two years ago.

On Monday, Osram said the Kulim plant was on schedule and under budget, and that only 16-18 percent of revenue of the Opto optical chip unit would come from general purpose lighting for streets and buildings, roughly half the amount first planned.

Investors’ main concern when the new plant was announced was that Osram would become engaged in a price war for commoditised general lighting with Chinese low-cost rivals.

“This is very positive for profitability,” wrote Jefferies analyst Peter Reilly, keeping his “buy” recommendation.

“Osram has released a lot of new information and our high-level conclusion is that the medium-term growth and margin outlook is very positive.” ($1 = 0.8643 euros) (Reporting by Georgina Prodhan; Editing by Maria Sheahan and Susan Fenton)

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