North American acquisition

Acal 17 February 2016 Update

Acal

North American acquisition

Trading update & acquisition

Industrial support services

 

17 February 2016

Price

248.0p

Market cap

£156m

£/US$1.45

Net debt (£m) at end H116

21.9

Shares in issue

63.0m

Free float

99%

Code

ACL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.4)

(11.4)

(1.6)

Rel (local)

(11.6)

(6.6)

13.2

52-week high/low

325.75p

240.00p

Business description

Acal is a leading international supplier of customised electronics to industry. It designs, manufactures and distributes customer-specific electronic products and solutions to 25,000 industrial manufacturers.

Next event

Trading update

April 2016

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Acal is a research client of Edison Investment Research Limited

Acal reports that trading in the four months to 31 January 2016 has continued in a similar vein to H116, with a strong performance from the Design & Manufacturing (D&M) business partly offset by continued weakness in UK Custom Distribution. The company has made its first direct acquisition in North America for £2m, expanding its magnetics capability and providing scope for further cross-selling. With management expectations for FY16 earnings unchanged, we maintain our forecasts.

Year end

Revenue (£m)

PBT* (£m)

EPS* (p)

DPS (p)

P/E (x)

Yield (%)

03/14

211.6

6.9

13.1

6.80

18.9

2.7

03/15

271.1

12.4

16.4

7.60

15.1

3.1

03/16e

294.9

14.5

16.5

7.98

15.0

3.2

03/17e

317.9

16.7

18.4

8.30

13.5

3.3

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

On track to meet FY16 earnings expectations

For the four months ended 31 January, Acal saw constant currency growth of 26% for its D&M business, with underlying growth similar to the 4% experienced in H116. Custom Distribution saw flat ongoing sales (ie excluding large one-off sales in H215 and sales of discontinued non-specialist product), with the unchanged trend of a stronger continental Europe and weaker UK. Recent acquisitions (Flux, Contour Electronics) are performing as expected. Gross margin remains firm and management maintains its earnings forecast for FY16.

Acquisition of Canadian magnetics company

Acal has acquired Plitron Manufacturing Inc, a Canadian designer and manufacturer of custom toroidal transformers, paying C$4m/£2m on a debt-free/cash-free basis using existing debt facilities. Plitron has a Canadian and US customer base and in the 12 months ended 31 May 2015 generated revenues of C$8.2/£4.0m. While Acal already has some presence in the US, this is the company’s first direct acquisition in North America. We view this deal as a sensible way for Acal to test out the North American market in a product area that is complementary to its existing magnetic expertise.

Valuation: Growing proportion of D&M drives upside

The stock is trading on a P/E of 15.0x FY16e and 13.5x FY17e, at a discount to its peer group. Acal continues to make good progress in its strategy to move up the value chain and, in the medium term, as it grows the proportion of revenue generated from D&M, we expect to see further operating margin expansion. In addition to the wider geographic coverage and cross-selling potential of recent acquisitions, we see scope for further share price upside from additional value-enhancing acquisitions. The stock is supported by a dividend yield of more than 3%.

Exhibit 1: Financial summary

£m

2011

2012

2013

2014

2015

2016e

2017e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

264.8

257.8

177.4

211.6

271.1

294.9

317.9

Cost of Sales

(189.6)

(179.9)

(123.0)

(148.6)

(186.7)

(201.8)

(217.5)

Gross Profit

75.2

77.9

54.4

63.0

84.4

93.2

100.5

EBITDA

 

 

9.1

10.2

7.4

9.1

16.6

19.6

22.8

Operating Profit (before am, SBP and except.)

7.7

8.7

6.1

7.7

14.0

16.7

19.9

Operating Profit (before am. and except.)

 

7.4

8.1

5.5

7.1

13.4

15.9

19.1

Amortisation of acquired intangibles

(0.3)

(0.8)

(0.7)

(1.0)

(2.1)

(2.6)

(2.6)

Exceptionals

(4.6)

(3.4)

(3.4)

(0.9)

(5.2)

(2.3)

(2.2)

Share-based payments

(0.3)

(0.6)

(0.6)

(0.6)

(0.6)

(0.8)

(0.8)

Operating Profit

2.5

3.9

1.4

5.2

6.1

11.0

14.3

Net Interest

(0.3)

(0.9)

(0.5)

(0.8)

(1.6)

(2.2)

(3.2)

Profit Before Tax (norm)

 

 

7.4

7.8

5.6

6.9

12.4

14.5

16.7

Profit Before Tax (FRS 3)

 

 

1.9

2.7

0.7

4.2

4.3

8.5

10.8

Tax

(0.2)

(0.6)

1.4

(0.5)

(1.4)

(2.1)

(2.8)

Profit After Tax (norm)

5.8

6.4

4.6

6.0

10.0

11.1

12.7

Profit After Tax (FRS 3)

1.7

2.1

2.1

3.7

2.9

6.4

8.0

Average Number of Shares Outstanding (m)

39.1

39.2

39.2

43.1

57.6

63.3

64.1

EPS - normalised & diluted (p)

 

 

14.2

15.7

11.3

13.1

16.4

16.5

18.4

EPS - IFRS basic (p)

 

 

4.3

5.4

(4.8)

3.0

5.0

10.1

12.5

EPS - IFRS diluted (p)

 

 

4.2

5.1

(4.7)

2.8

4.8

9.5

11.6

Dividend per share (p)

5.4

5.8

6.2

6.8

7.6

8.0

8.3

Gross Margin (%)

28.4

30.2

30.7

29.8

31.1

31.6

31.6

EBITDA Margin (%)

3.4

4.0

4.2

4.3

6.1

6.7

7.2

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

2.9

3.4

3.4

3.6

5.2

5.7

6.3

BALANCE SHEET

Fixed Assets

 

 

27.7

32.5

30.9

33.1

88.6

107.8

105.6

Intangible Assets

21.1

25.7

24.2

25.5

69.9

88.8

86.2

Tangible Assets

3.8

3.5

3.1

3.5

13.8

14.1

14.5

Deferred tax assets

2.8

3.3

3.6

4.1

4.9

4.9

4.9

Current Assets

 

 

98.3

86.8

81.8

92.7

127.3

115.0

124.2

Stocks

25.3

25.7

19.3

19.4

39.8

43.6

47.0

Debtors

59.3

48.8

44.7

48.3

60.2

65.5

70.5

Cash

13.6

12.3

17.8

18.1

26.7

5.3

6.1

Current Liabilities

 

 

(63.9)

(58.8)

(50.9)

(58.3)

(62.1)

(72.7)

(83.1)

Creditors

(58.8)

(53.6)

(46.6)

(51.5)

(61.9)

(67.5)

(72.9)

Short term borrowings

(5.1)

(5.2)

(4.3)

(6.8)

(0.2)

(5.2)

(10.2)

Long Term Liabilities

 

 

(10.8)

(11.4)

(10.3)

(19.0)

(61.1)

(57.1)

(52.1)

Long term borrowings

(1.8)

(0.8)

(1.7)

(9.5)

(45.5)

(40.5)

(35.5)

Other long term liabilities

(9.0)

(10.6)

(8.6)

(9.5)

(15.6)

(16.6)

(16.6)

Net Assets

 

 

51.3

49.1

51.5

48.5

92.7

93.0

94.6

CASH FLOW

Operating Cash Flow

 

 

0.5

9.1

5.7

6.1

6.6

13.0

18.0

Net Interest

(0.3)

(0.9)

(0.6)

(0.8)

(1.6)

(2.2)

(3.2)

Tax

0.5

(1.1)

(1.4)

(0.9)

(3.3)

(3.9)

(4.5)

Capex

(1.3)

(1.4)

(1.3)

(1.4)

(2.5)

(3.0)

(3.3)

Acquisitions/disposals

(4.4)

(3.9)

(0.5)

(9.2)

(37.3)

(20.4)

(1.2)

Financing

0.0

0.3

5.7

0.1

52.7

0.0

0.0

Dividends

(2.0)

(2.2)

(2.3)

(2.7)

(3.6)

(4.9)

(5.1)

Net Cash Flow

(7.0)

(0.1)

5.3

(8.8)

11.0

(21.4)

0.7

Opening net cash/(debt)

 

 

13.9

6.7

6.3

11.8

1.8

(19.0)

(40.4)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.2)

(0.3)

0.2

(1.2)

(31.8)

0.0

0.0

Closing net cash/(debt)

 

 

6.7

6.3

11.8

1.8

(19.0)

(40.4)

(39.6)

Source: Acal, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Acal and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Share this with friends and colleagues

You may be interested in