Focus on growth markets paying off

discoverIE Group 9 December 2019 Update
Download PDF

discoverIE Group

Focus on growth markets paying off

H120 results

Electronic &
electrical equipment

9 December 2019

Price

538p

Market cap

£477m

€1.17/NOK11.8/£

Net debt (£m) at end H120

55.4

Shares in issue

88.7m

Free float

96%

Code

DSCV

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.5

22.3

49.0

Rel (local)

4.6

21.5

36.1

52-week high/low

554p

353p

Business description

discoverIE is a leading international designer and manufacturer of customised electronics to industry, supplying customer-specific electronic products and solutions to 25,000 industrial manufacturers.

Next events

Trading update

January 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

discoverIE Group is a research client of Edison Investment Research Limited

discoverIE’s H1 results confirm it is making continued good progress with its strategy to build its design and manufacturing (D&M) business. Underlying organic group revenue growth of 5% was boosted by higher margin acquisitions and the group is fast approaching its mid-term operating margin target. Targeting higher growth markets within D&M and focusing on efficiency in Custom Supply supports ongoing growth in revenues and profitability.

Year end

Revenue (£m)

PBT*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/18

387.9

22.6

23.0

9.0

23.4

1.7

03/19

438.9

28.4

28.4

9.6

18.9

1.8

03/20e

475.4

33.7

29.4

10.0

18.3

1.9

03/21e

498.5

37.6

31.1

10.4

17.3

1.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Revenue and margin growth; strong cash generation

In H120 discoverIE generated 5% organic constant exchange rate (CER) revenue growth, with a 4% contribution from acquisitions and a further 1% boost from currency. The Design & Manufacturing (D&M) business was the driver of organic revenue growth (+7% CER) and this, combined with higher margin acquisitions, helped lift the group underlying operating margin by 0.8pp y-o-y. Despite flat underlying demand in Custom Supply (CS), the division managed to expand its operating margin by 0.2pp y-o-y. Cash generation was strong, with 101% cash conversion of underlying operating profit in H1 and free cash flow (after dividends) of £19m over the last 12 months. While our underlying estimates are substantially unchanged, we have revised our forecasts to reflect the application of IFRS 16.

Buy-and-build strategy drives strong performance

Since 2011, the company has made 15 D&M acquisitions and this division contributed 63% of revenues and 81% of operating profit in H120. The focus on higher growth target markets is helping the group to grow at rates ahead of GDP and the group is very close to hitting medium-term profitability targets. discoverIE has a well-established process for targeting and integrating higher margin custom electronics companies, enabling them to retain their entrepreneurial spirit while taking advantage of the group’s central functions and balance sheet. We expect further D&M acquisitions, with a focus on expanding international reach.

Valuation: D&M focus supports upside

Since the placing at 415p per share in October, the stock has gained 30% and now trades at a small discount to the peer group average on a P/E and EV/EBIT basis. Further progress in increasing the weighting of business towards the higher growth and margin D&M business, combined with maintaining the profitability of the Custom Supply business, should help to further reduce the discount. The stock is supported by a dividend yield approaching 2%.

Review of H120 results

Exhibit 1: H120 results highlights

£m

H120

H119

y-o-y

Revenues

232.0

211.7

9.6%

Custom supply

85.4

83.9

1.8%

Design & manufacturing

146.6

127.8

14.7%

Gross profit

77.4

69.9

10.7%

Gross margin

33.4%

33.0%

0.3%

Normalised operating profit

Custom supply

4.1

3.9

5.1%

Design & manufacturing

17.6

14.2

23.9%

Central costs

(3.4)

(3.1)

9.7%

Total normalised operating profit

18.3

15.0

22.0%

Normalised operating margin (%)

Custom supply

4.8%

4.6%

0.2%

Design & manufacturing

12.0%

11.1%

0.9%

Total normalised operating margin (%)

7.9%

7.1%

0.8%

discoverIE underlying* operating profit

17.7

14.5

22.1%

discoverIE underlying operating margin

7.6%

6.8%

0.8%

Reported operating profit

12.6

9.5

32.6%

Reported operating margin

5.4%

4.5%

0.9%

Normalised PBT

16.1

13.3

21.1%

Normalised net income

12.3

10.0

22.8%

Normalised diluted EPS (p)

14.8

13.4

10.9%

Underlying diluted EPS (p)

14.4

13.0

10.8%

Reported diluted EPS (p)

14.4

7.1

102.8%

Dividend (p)

2.97

2.80

6.1%

Net cash/(debt) excluding lease liabilities

(55.4)

(62.6)

(11.5%)

Source: discoverIE, Edison Investment Research. Note: *Underlying operating profit excludes amortisation of acquired intangibles and exceptional items.

discoverIE reported H120 revenue growth of 9.6% year-on-year, or 5% on an organic, constant exchange rate basis. Acquisitions contributed 4% to growth and currency 1%.

Gross profit increased at a slightly higher rate, reflecting the increased proportion of higher margin D&M revenues. Normalised operating profit increased 22% y-o-y, mainly due to the 24% increase in D&M operating profit, again reflecting higher margin acquisitions. After taking account of share-based payments, underlying operating profit increased 22% y-o-y resulting in an underlying operating margin of 7.6%, up from 6.8% a year ago.

The company applied IFRS 16 for the first time from 1 April 2019. The removal of lease payments of £3.3m from operating expenses was offset by a £3.1m depreciation charge for right-of-use assets. Finance costs included £0.3m of interest charges relating to lease liabilities. This resulted in a £0.1m negative impact at the PBT level. At the end of H120, the company reported right-of-use assets with a net book value of £17.8m and lease liabilities of £17.9m.

The company incurred tax at a rate of 28% on reported PBT and 24% on underlying PBT. After taking into account shares issued in the placing to fund the Hobart and Positek acquisitions, normalised EPS was 10.9% higher year-on-year.

The company announced an interim dividend of 2.97p, +6% y-o-y.

At the period end, net debt had reduced to £55.4m from £62.6m a year ago and £63.3m at the end of FY19. The company delivered an increase in operating cash of 48% over the last 12 months, and in H120 converted 101% of underlying operating profit to operating cash, well ahead of its 85% target. This cash generation reduced gearing at the period end to 1.3x, with pro forma gearing of 1.6x including the recent Sens-Tech acquisition.

Exhibit 2: Divisional performance

(£m)

H120

H119

H119 CER

Reported y-o-y

CER y-o-y

Like-for-like

Revenues

Design & manufacturing

146.6

127.8

128.2

15%

14%

7%

Custom Supply

85.4

83.9

83.9

2%

2%

0%

Total revenues

232.0

211.7

212.1

10%

9%

5%

Underlying operating profit

Design & manufacturing

17.6

14.2

14.2

24%

24%

Custom Supply

4.1

3.9

3.9

5%

5%

Unallocated

(4.0)

(3.6)

(3.6)

11%

11%

Total underlying operating profit

17.7

14.5

14.5

22%

22%

Underlying operating margin (%)

Design & manufacturing

12.0%

11.1%

11.1%

0.9%

0.9%

Custom Supply

4.8%

4.6%

4.6%

0.2%

0.2%

Total underlying operating margin

7.6%

6.8%

6.8%

0.8%

0.8%

Source: discoverIE

Design & Manufacturing benefits from targeting key markets

D&M revenues were 14.7% higher year-on-year and 7% higher on an organic CER basis. Acquisitions contributed growth of 7% and currency 1%. Underlying operating profit increased 24% yoy driving the operating margin up by 0.9pp over the year to 12.0%.

On a quarterly basis, Q1 revenues were 4% higher on an organic basis, jumping to +11% in Q2. In Q119 the company signed a large contract with Bombardier, creating a tough comparison for Q120.

On a geographic basis, performance was mixed. Germany and the Nordic region saw 9% growth and Asia 28% growth. The UK (-7% y-o-y) and US (+3%) felt the impact of inventory corrections – the UK from Q1 and the US from Q2.

The company noted that the majority (70%) of D&M H1 revenues were from target markets, generating organic growth at a rate of 9%, compared to non-target markets generating revenue growth of 3%. Target markets are renewable energy, transportation, medical and industrial and connectivity, all of which offer structural long-term growth.

The business completed the expansion of its China facility during H120 and is investing to expand the Bangalore facility. During H120, of the £22m of revenues generated in the US, £2.8m were subject to US tariffs on goods manufactured in China. The company managed to pass through the cost of the tariffs to customers, but also gave them the option to have their product manufactured in India rather than China. Around half of the volumes affected by tariffs are being shifted to the India facility.

The division is also investing in management development and succession as well as upgrading IT systems used by the various businesses.

Custom Supply focused on efficiency

Custom Supply revenues were 2% higher y-o-y on a reported and CER basis. During H120, the company shifted the RSG business from D&M to CS, reflecting the high level of distribution business. Excluding this transfer, CS revenues were flat year-on-year. Geographically, the division saw strong growth in Benelux and Italy while revenues in the UK and Germany declined.

As this division has less exposure to target markets and has suffered from weakness in the German automotive market, management is focused on making the business as efficient as possible in the face of lacklustre demand. Underlying operating profit was 5% higher year-on-year lifting the operating margin by 0.2pp.

Performance against KPIs

Exhibit 3: Key strategic and performance indicators, FY14–H120

FY14

FY15

FY16

FY17

FY18

FY19

H120

Mid-term target*

Long-term ambition

Key Strategic Indicator (KSI)

Increase D&M revenue

18%

37%

48%

52%

57%

61%

63%

75%

85%

Increase underlying op. margin

3.4%

4.9%

5.7%

5.9%

6.3%

7.0%

7.6%

8.5%

10.0%

Build sales beyond Europe

5%

12%

17%

19%

23%

21%

24%

30%

40%

Key performance indicators (KPI)

Three-year target (FY20)

Sales growth: CER

17%

36%

14%

6%

11%

14%

9%

Sales growth: organic

2%

3%

3%

-1%

6%

8%

5%

Well ahead of GDP

Increase cross-selling

£0.3m

£0.9m

£3.0m

£4.6m

£8.8m

£9.7m

£10.8m

£12m pa (up from £10m)

Underlying EPS growth

20%

31%

10%

13%

16%

22%

11%

>10%

Dividend growth

10%

11%

6%

6%

6%

6%

6%

Progressive

ROCE

15.2%

12.0%

11.6%

13.0%

13.5%

15.4%

15.8%

>15%

Operating cash flow generation

100%

104%

100%

136%

85%

93%

101%

>85% of underlying profit

Source: discoverIE. Note: *Three to five years from November 2016.

The company continues to make progress against its KSIs and KPIs. Since the acquisition of Sens-Tech, the company is close to hitting its mid-term operating margin target. DiscoverIE estimates that it is generating a pro forma underlying operating margin of 8.4%, almost at the mid-term target. To meet the target of 75% of revenues generated by the D&M business by November 2021 will be more difficult, as each D&M business acquired also increases the size of the denominator. Even if the company misses this target, it is moving in the right direction and is likely to achieve the more important operating margin target on a lower proportion of D&M revenues.

Outlook and changes to forecasts

In the short term, order intake provides a good indicator of revenue performance – the company typically has roughly four months of sales in its backlog. In the longer term, design win activity is a lead indicator of future order wins. Management highlighted that it tasks each business with generating design wins worth 20% of current business, in order to develop a pipeline of business for future volume shipments. Even while the company is seeing an element of inventory destocking in various countries, it is keen to be included in customer plans for future product introductions so that when demand recovers, it is well positioned for volume orders.

Order intake: group order intake was 9% higher than a year ago and 4% higher on an organic CER basis. D&M orders were 8% higher on an organic CER basis.

Order book: at the end of H120, the order book was 15% higher than a year ago and was 11% higher on an organic basis.

Design win activity: in H120, the company was designed into £134m of new projects (estimated lifetime value), +6% y-o-y. 80% of design wins were in target markets at a group level and 90% for D&M.

Management is confident that it will meet its expectations for FY20. We have made changes to our forecasts to reflect H1 performance and the application of IFRS 16 for the first time. The company continues to target gearing in the range 1.5–2.0x EBITDA (calculated on a pre-IFRS 16 basis).

Exhibit 4: Changes to forecasts

Year end 31 March (£m)

FY20e old

FY20e new

% change

% y-o-y

FY21e old

FY21e new

% change

% y-o-y

Revenues

472.8

475.4

0.6%

8.3%

495.7

498.5

0.6%

4.8%

Custom supply

174.4

173.3

(0.6%)

0.4%

176.2

175.0

(0.6%)

1.0%

Design & manufacturing

298.3

302.1

1.3%

13.5%

319.5

323.4

1.2%

7.1%

Gross margin

33.2%

33.3%

0.2%

0.3%

33.3%

33.3%

0.0%

(0.0%)

EBITDA

43.5

50.4

16.0%

36.3%

48.1

54.4

13.3%

8.0%

EBITDA margin

9.2%

10.6%

1.4%

2.2%

9.7%

10.9%

1.2%

0.3%

Underlying operating profit

36.8

37.2

1.2%

21.7%

41.2

41.4

0.7%

11.3%

Underlying operating profit margin

7.8%

7.8%

0.1%

0.9%

8.3%

8.3%

0.0%

0.5%

Normalised operating profit

38.1

38.4

0.9%

20.9%

42.5

42.6

0.4%

11.0%

Normalised operating margin

8.1%

8.1%

0.0%

0.8%

8.6%

8.6%

(0.0%)

0.5%

Normalised PBT

33.9

33.7

(0.4%)

18.7%

37.9

37.6

(0.8%)

11.4%

Normalised net income

25.5

25.4

(0.5%)

18.3%

28.6

28.3

(0.9%)

11.7%

Normalised diluted EPS (p)

29.5

29.4

(0.5%)

3.3%

31.4

31.1

(0.9%)

5.8%

Reported basic EPS (p)

19.1

19.5

2.2%

(2.6%)

21.5

21.3

(0.9%)

9.4%

Net (debt)/cash

(77.3)

(77.1)

(0.1%)

21.9%

(68.4)

(69.1)

1.0%

(10.4%)

Net debt/EBITDA (x)

1.7

1.8

1.4

1.4

Source: Edison Investment Research

Valuation

Since the placing at 415p per share in October, the stock has gained 30% and now trades at a small discount to the peer group average on a P/E and EV/EBIT basis. Further progress in increasing the weighting of business towards the higher growth and margin D&M business, combined with maintaining the profitability of the Custom Supply business, should help to further reduce the discount. The stock is supported by a dividend yield approaching 2%.

Exhibit 5: Peer group valuation metrics

 

EV/sales

EV/EBIT

P/E

Dividend yield

Last yr

This yr

Next yr

Last yr

This yr

Next yr

Last yr

This yr

Next yr

Last yr

This yr

Next yr

discoverIE

1.4

1.2

1.1

17.0

14.1

12.7

18.9

18.3

17.3

1.8%

1.9%

1.9%

Design & manufacturing

Gooch & Housego

2.6

2.5

2.4

22.3

19.0

16.7

22.1

28.6

23.5

0.9%

0.9%

1.0%

TT Electronics

1.1

1.0

0.9

14.0

11.8

11.1

14.5

13.0

12.2

2.8%

2.9%

3.1%

XP Power

3.2

3.1

3.0

14.5

15.9

14.5

17.0

19.7

17.6

2.9%

2.9%

3.1%

Specialist distributors

Diploma

4.3

3.5

3.4

20.4

19.9

18.6

32.7

26.1

24.9

1.4%

1.7%

1.8%

Solid State

0.7

0.6

0.6

11.4

9.2

8.6

13.1

11.2

10.7

2.6%

2.9%

3.1%

High service & commodity distributors

Electrocomponents

1.7

1.6

1.5

14.3

13.7

12.7

17.7

17.1

15.9

2.3%

2.4%

2.6%

Average

2.3

2.0

2.0

16.1

14.9

13.7

19.5

19.3

17.5

2.1%

2.3%

2.4%

Versus peer group

(6%)

(7%)

(5%)

(1%)

Source: Edison Investment Research, Refinitiv (as at 6 December 2019)

Exhibit 6: Financial summary

£m

2015

2016

2017

2018

2019

2020e

2021e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

271.1

287.7

338.2

387.9

438.9

475.4

498.5

Cost of Sales

(186.7)

(195.1)

(227.2)

(261.2)

(293.9)

(317.0)

(332.5)

Gross Profit

84.4

92.6

111.0

126.7

145.0

158.5

166.0

EBITDA

 

 

16.6

19.8

24.3

29.3

37.0

50.4

54.4

Operating Profit (before am, SBP and except.)

 

14.0

17.0

20.6

25.2

31.8

38.4

42.6

Operating Profit (before am. and except.)

 

13.4

16.3

20.0

24.5

30.6

37.2

41.4

Amortisation of acquired intangibles

(2.1)

(2.8)

(3.9)

(4.9)

(5.9)

(7.6)

(8.0)

Exceptionals

(5.2)

(2.1)

(8.4)

(2.3)

(2.0)

(3.1)

(3.2)

Share-based payments

(0.6)

(0.7)

(0.6)

(0.7)

(1.2)

(1.2)

(1.2)

Operating Profit

6.1

11.4

7.7

17.3

22.7

26.5

30.2

Net Interest

(1.6)

(1.8)

(2.8)

(2.6)

(3.4)

(4.7)

(5.1)

Profit Before Tax (norm)

 

 

12.4

15.2

17.8

22.6

28.4

33.7

37.6

Profit Before Tax (FRS 3)

 

 

4.3

9.4

4.8

14.6

19.3

21.7

25.0

Tax

(1.4)

(2.2)

(1.3)

(4.0)

(4.7)

(5.4)

(6.1)

Profit After Tax (norm)

10.0

11.8

13.6

17.1

21.5

25.4

28.3

Profit After Tax (FRS 3)

2.9

7.2

3.5

10.6

14.6

16.3

18.9

Average Number of Shares Outstanding (m)

57.6

63.3

65.4

70.8

73.0

83.9

88.7

EPS - normalised & diluted (p)

 

 

16.4

17.8

19.9

23.0

28.4

29.4

31.1

EPS - IFRS basic (p)

 

 

5.0

11.4

5.3

15.0

20.0

19.5

21.3

EPS - IFRS diluted (p)

 

 

4.8

10.9

5.1

14.2

19.4

18.9

20.7

Dividend per share (p)

7.6

8.1

8.5

9.0

9.6

10.0

10.4

Gross Margin (%)

31.1

32.2

32.8

32.7

33.0

33.3

33.3

EBITDA Margin (%)

6.1

6.9

7.2

7.6

8.4

10.6

10.9

Operating Margin (before am, SBP and except.) (%)

5.2

5.9

6.1

6.5

7.2

8.1

8.6

BALANCE SHEET

Fixed Assets

 

 

88.6

108.4

122.2

136.4

149.2

232.9

219.6

Intangible Assets

69.9

88.2

100.7

107.2

119.7

187.6

179.5

Tangible Assets

13.8

14.7

16.0

23.4

24.4

40.2

35.0

Deferred tax assets

4.9

5.5

5.5

5.8

5.1

5.1

5.1

Current Assets

 

 

127.3

128.3

147.1

165.9

179.1

181.2

192.7

Stocks

39.8

42.9

48.8

58.1

66.2

71.6

75.1

Debtors

60.2

65.5

77.3

84.6

88.7

104.2

109.3

Cash

26.7

19.9

21.0

21.9

22.9

4.1

7.1

Current Liabilities

 

 

(62.1)

(61.7)

(78.1)

(94.0)

(96.0)

(110.1)

(113.6)

Creditors

(61.9)

(60.9)

(77.1)

(87.6)

(94.3)

(101.7)

(105.2)

Lease liabilities

0.0

0.0

0.0

0.0

0.0

(6.7)

(6.7)

Short term borrowings

(0.2)

(0.8)

(1.0)

(6.4)

(1.7)

(1.7)

(1.7)

Long Term Liabilities

 

 

(61.1)

(73.1)

(68.7)

(81.5)

(97.6)

(100.2)

(85.4)

Long term borrowings

(45.5)

(57.2)

(50.0)

(67.9)

(84.5)

(79.5)

(74.5)

Lease liabilities

0.0

0.0

0.0

0.0

0.0

(7.9)

(1.2)

Other long term liabilities

(15.6)

(15.9)

(18.7)

(13.6)

(13.1)

(12.8)

(9.7)

Net Assets

 

 

92.7

101.9

122.5

126.8

134.7

203.9

213.4

CASH FLOW

Operating Cash Flow

 

 

6.6

14.6

20.5

21.7

30.0

35.0

47.5

Net Interest

(1.6)

(1.8)

(2.8)

(2.6)

(3.4)

(4.7)

(5.1)

Tax

(3.3)

(4.3)

(3.0)

(3.7)

(3.8)

(8.3)

(9.2)

Capex

(2.5)

(2.3)

(3.4)

(4.3)

(5.4)

(6.4)

(6.5)

Acquisitions/disposals

(37.3)

(19.8)

(11.8)

(25.4)

(22.4)

(74.7)

(3.0)

Financing

52.7

0.0

13.6

(1.5)

0.1

53.9

(6.7)

Dividends

(3.6)

(4.9)

(5.2)

(6.2)

(6.7)

(8.6)

(9.0)

Net Cash Flow

11.0

(18.5)

7.9

(22.0)

(11.6)

(13.8)

8.0

Opening net cash/(debt)

 

 

1.8

(19.0)

(38.1)

(30.0)

(52.4)

(63.3)

(77.1)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(31.8)

(0.6)

0.2

(0.4)

0.7

0.0

0.0

Closing net cash/(debt)

 

 

(19.0)

(38.1)

(30.0)

(52.4)

(63.3)

(77.1)

(69.1)

Source: discoverIE, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by discoverIE and prepared and issued by Edison, in consideration of a fee payable by discoverIE. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by discoverIE and prepared and issued by Edison, in consideration of a fee payable by discoverIE. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues

You may be interested in