Acal — Update 27 July 2016

discoverIE Group (LSE: DSCV)

Last close As at 01/11/2024

GBP6.70

5.00 (0.75%)

Market capitalisation

GBP641m

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Research: TMT

Acal — Update 27 July 2016

Acal

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Acal

Q1 trading in line; possible Brexit upside

AGM update

Industrial support services

27 July 2016

Price

240.00p

Market cap

£154m

€1.19:NOK11.25:£1

Net debt (£m) at end FY16

38.1

Shares in issue

64.2m

Free float

99%

Code

ACL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.4

(8.1)

(20.9)

Rel (local)

(7.7)

(13.1)

(22.0)

52-week high/low

306.50p

215.00p

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 events

H116 results

November 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

Trading in Q117 has been in line with management expectations, supporting the company’s outlook for FY17. Management has taken action to reduce manufacturing costs, which should support operating margins. The positive effect of the weaker pound on the translation of overseas results should outweigh any pressure on margins within the UK, although we make no changes to our estimates at this stage.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

211.6

6.9

13.1

6.80

18.3

2.8

03/15

271.1

12.4

16.4

7.60

14.6

3.2

03/16

287.7

15.2

17.8

8.05

13.5

3.4

03/17e

309.8

16.5

18.4

8.30

13.0

3.5

03/18e

319.6

17.7

19.3

8.50

12.4

3.5

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

Q1 trading supports management outlook for FY17

Despite slower sales in Q1 (in line with comments in June that H117 trading conditions were challenging), the company saw Q1 profits in line with expectations, with the outlook for FY17 unchanged. Gross margins are up year-on-year and July orders to date are higher than a year ago, with book-to-bill above one. To reduce operating costs, the company has closed three Nordic manufacturing facilities and shifted production to existing lower-cost facilities in Poland and Sri Lanka.

Brexit impact mixed

With 80% of revenues generated outside the UK, the recent weakness of sterling will be beneficial for the translation of Acal’s overseas results. For the UK business (20% of revenues), the rising cost of dollar- or euro-based imports could squeeze margins if the company is not able to pass on cost increases. While there is a risk that end demand for UK customers’ products could be weaker domestically, the weakness of sterling could make their exports more attractive.

Valuation: Trading at a discount

The stock is trading at a discount to the peer group average on EV/EBITDA and P/E multiples. Acal is focused on end-markets that look set to benefit from long-term technology trends, such as transportation, healthcare, renewable energy and connectivity. This focus, combined with the increased geographic coverage, integration benefits and cross-selling potential of recent acquisitions, should support revenue growth above market levels and further expansion of operating margins. The stock is supported by a dividend yield of 3.5%. In the medium term, we expect to see improving operating margins drive earnings upside as Acal grows the proportion of revenue generated from design and manufacturing.

Exhibit 1: Financial summary

£m

2011

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

264.8

257.8

177.4

211.6

271.1

287.7

309.8

319.6

Cost of Sales

(189.6)

(179.9)

(123.0)

(148.6)

(186.7)

(195.1)

(208.2)

(214.8)

Gross Profit

75.2

77.9

54.4

63.0

84.4

92.6

101.6

104.8

EBITDA

 

 

9.1

10.2

7.4

9.1

16.6

19.8

22.4

23.7

Operating Profit (before am, SBP and except.)

7.7

8.7

6.1

7.7

14.0

17.0

19.5

20.7

Operating Profit (before am. and except.)

 

7.4

8.1

5.5

7.1

13.4

16.3

18.7

19.9

Amortisation of acquired intangibles

(0.3)

(0.8)

(0.7)

(1.0)

(2.1)

(2.8)

(3.2)

(3.2)

Exceptionals

(4.6)

(3.4)

(3.4)

(0.9)

(5.2)

(2.1)

(2.2)

(2.2)

Share-based payments

(0.3)

(0.6)

(0.6)

(0.6)

(0.6)

(0.7)

(0.8)

(0.8)

Operating Profit

2.5

3.9

1.4

5.2

6.1

11.4

13.3

14.5

Net Interest

(0.3)

(0.9)

(0.5)

(0.8)

(1.6)

(1.8)

(3.0)

(3.0)

Profit Before Tax (norm)

 

 

7.4

7.8

5.6

6.9

12.4

15.2

16.5

17.7

Profit Before Tax (FRS 3)

 

 

1.9

2.7

0.7

4.2

4.3

9.4

10.1

11.3

Tax

(0.2)

(0.6)

1.4

(0.5)

(1.4)

(2.2)

(2.6)

(2.9)

Profit After Tax (norm)

5.8

6.4

4.6

6.0

10.0

11.8

12.5

13.4

Profit After Tax (FRS 3)

1.7

2.1

2.1

3.7

2.9

7.2

7.5

8.4

Average Number of Shares Outstanding (m)

39.1

39.2

39.2

43.1

57.6

63.3

64.2

64.2

EPS - normalised & diluted (p)

 

 

14.2

15.7

11.3

13.1

16.4

17.8

18.4

19.3

EPS - IFRS basic (p)

 

 

4.3

5.4

(4.8)

3.0

5.0

11.4

11.7

13.2

EPS - IFRS diluted (p)

 

 

4.2

5.1

(4.7)

2.8

4.8

10.9

11.0

12.2

Dividend per share (p)

5.4

5.8

6.2

6.8

7.6

8.1

8.3

8.5

Gross Margin (%)

28.4

30.2

30.7

29.8

31.1

32.2

32.8

32.8

EBITDA Margin (%)

3.4

4.0

4.2

4.3

6.1

6.9

7.2

7.4

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

2.9

3.4

3.4

3.6

5.2

5.9

6.3

6.5

BALANCE SHEET

Fixed Assets

 

 

27.7

32.5

30.9

33.1

88.6

108.4

104.8

101.5

Intangible Assets

21.1

25.7

24.2

25.5

69.9

88.2

84.9

81.6

Tangible Assets

3.8

3.5

3.1

3.5

13.8

14.7

14.4

14.4

Deferred tax assets

2.8

3.3

3.6

4.1

4.9

5.5

5.5

5.5

Current Assets

 

 

98.3

86.8

81.8

92.7

127.3

128.3

136.1

142.6

Stocks

25.3

25.7

19.3

19.4

39.8

42.9

45.8

47.3

Debtors

59.3

48.8

44.7

48.3

60.2

65.5

70.4

72.7

Cash

13.6

12.3

17.8

18.1

26.7

19.9

19.9

22.6

Current Liabilities

 

 

(63.9)

(58.8)

(50.9)

(58.3)

(62.1)

(61.7)

(72.2)

(79.2)

Creditors

(58.8)

(53.6)

(46.6)

(51.5)

(61.9)

(60.9)

(66.4)

(68.4)

Short term borrowings

(5.1)

(5.2)

(4.3)

(6.8)

(0.2)

(0.8)

(5.8)

(10.8)

Long Term Liabilities

 

 

(10.8)

(11.4)

(10.3)

(19.0)

(61.1)

(73.1)

(68.1)

(63.1)

Long term borrowings

(1.8)

(0.8)

(1.7)

(9.5)

(45.5)

(57.2)

(52.2)

(47.2)

Other long term liabilities

(9.0)

(10.6)

(8.6)

(9.5)

(15.6)

(15.9)

(15.9)

(15.9)

Net Assets

 

 

51.3

49.1

51.5

48.5

92.7

101.9

100.7

101.8

CASH FLOW

Operating Cash Flow

 

 

0.5

9.1

5.7

6.1

6.6

14.6

18.2

20.3

Net Interest

(0.3)

(0.9)

(0.6)

(0.8)

(1.6)

(1.8)

(3.0)

(3.0)

Tax

0.5

(1.1)

(1.4)

(0.9)

(3.3)

(4.3)

(4.4)

(4.9)

Capex

(1.3)

(1.4)

(1.3)

(1.4)

(2.5)

(2.3)

(2.5)

(2.9)

Acquisitions/disposals

(4.4)

(3.9)

(0.5)

(9.2)

(37.3)

(19.8)

(3.2)

(1.5)

Financing

0.0

0.3

5.7

0.1

52.7

0.0

0.0

0.0

Dividends

(2.0)

(2.2)

(2.3)

(2.7)

(3.6)

(4.9)

(5.2)

(5.3)

Net Cash Flow

(7.0)

(0.1)

5.3

(8.8)

11.0

(18.5)

(0.0)

2.8

Opening net cash/(debt)

 

 

13.9

6.7

6.3

11.8

1.8

(19.0)

(38.1)

(38.1)

HP finance leases initiated

0.0

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)

(0.6)

0.0

(0.0)

Closing net cash/(debt)

 

 

6.7

6.3

11.8

1.8

(19.0)

(38.1)

(38.1)

(35.4)

Source: Acal, Edison Investment Research

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Germany

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United Kingdom

New York +1 646 653 7026

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US

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Level 25, Aurora Place

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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

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