Acal — Update 18 October 2016

discoverIE Group (LSE: DSCV)

Last close As at 22/02/2024

GBP6.96

−12.00 (−1.69%)

Market capitalisation

GBP671m

More on this equity

Research: TMT

Acal — Update 18 October 2016

Acal

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Acal

Outlook maintained

Trading update

Industrial support services

18 October 2016

Price

253.00p

Market cap

£163m

€1.11:NOK10.0:£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

(4.9)

6.3

(0.4)

Rel (local)

(7.5)

1.6

(8)

52-week high/low

285.0p

215.0p

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

H117 results

29 November

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 expects to report H117 results in line with expectations, with revenue growth of 10% y-o-y and double-digit growth in underlying operating profit. After an expected weak Q1, order intake in Q2 showed improvement. The company is restructuring the Custom Distribution business which should benefit profitability in FY18. We leave our estimates unchanged pending H117 results on 29 November.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

211.6

6.9

13.1

6.8

19.3

2.7

03/15

271.1

12.4

16.4

7.6

15.4

3.0

03/16

287.7

15.2

17.8

8.1

14.2

3.2

03/17e

309.8

16.5

18.4

8.3

13.8

3.3

03/18e

319.6

17.7

19.3

8.5

13.1

3.4

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

H117 trading in line with expectations

Acal expects to report H117 revenue growth of 10%, with 24% growth from Design & Manufacturing (D&M) and a 2% decline for Custom Distribution (CD). On a like-for-like basis (constant currency, organic) revenues declined 8% y-o-y and orders 1% y-o-y. Q217 saw improved order intake (+3% y-o-y), with a strong September (+6% y-o-y). The weakening of sterling since the Brexit vote is having a positive translational effect at the revenue level, although it creates cost pressures in the UK where a large proportion of purchases are imported. The company has maintained profitability despite these factors and management’s FY17 outlook is unchanged.

Custom Distribution restructuring

In July, the company announced that it was closing several of its D&M manufacturing facilities in the Nordic region. It has since expanded restructuring to include CD, closing down a loss-making subsidiary, reducing the size of the management team and reducing administration costs. This will incur an exceptional cash cost of £8m and should generate c £4m in cost savings on an annual basis. We will update our forecasts to reflect the restructuring when Acal reports interims on 29 November.

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, which should also benefit from the growing proportion of revenue generated from design and manufacturing. The stock is supported by a dividend yield above 3%.

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

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. 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

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. 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

More on discoverIE Group

View All

Latest from the TMT sector

View All TMT content

Rockhopper Exploration — Update 18 October 2016

Rockhopper Exploration

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free