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Currency in GBP
Last close As at 09/06/2023
GBP9.15
▲ 2.00 (0.22%)
Market capitalisation
GBP882m
Research: TMT
discoverIE has made a small bolt-on acquisition within its Sensing & Connectivity division for £5m in cash. CDT, a high-margin business, provides cross-selling opportunities and should support more complex integrated designs within the Contour business cluster. We estimate the deal is earnings accretive, upgrading our underlying EPS forecasts by 1.0% in FY23 and 1.2% in FY24.
discoverIE Group |
Bolt-on Sensing & Connectivity acquisition |
Acquisition of CDT |
Tech hardware and equipment |
7 July 2022 |
Share price performance
Business description
Next events
Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
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discoverIE has made a small bolt-on acquisition within its Sensing & Connectivity division for £5m in cash. CDT, a high-margin business, provides cross-selling opportunities and should support more complex integrated designs within the Contour business cluster. We estimate the deal is earnings accretive, upgrading our underlying EPS forecasts by 1.0% in FY23 and 1.2% in FY24.
Year end |
Revenue |
PBT* |
Dil. EPS* |
DPS |
P/E |
Yield |
03/21 |
302.8 |
27.2 |
22.4 |
10.15 |
29.4 |
1.5% |
03/22 |
379.2 |
37.6 |
29.4 |
10.80 |
22.4 |
1.6% |
03/23e |
402.6 |
40.1 |
30.4 |
11.15 |
21.7 |
1.7% |
03/24e |
415.3 |
41.8 |
31.6 |
11.50 |
20.9 |
1.7% |
Note: *PBT and EPS as per discoverIE’s underlying metric, excluding amortisation of acquired intangibles and exceptional items.
CDT acquired for £5m
discoverIE has acquired CDT group, a UK-based designer and manufacturer of customised plastic enclosures for circuit boards, membrane keypads and associated electronic components. CDT’s main markets are well-aligned with discoverIE’s strategic growth markets, including medical, renewables, emergency vehicles and industrial companies. CDT will be integrated into the Contour business cluster within the Sensing & Connectivity division, enhancing the cluster’s engineering capabilities and supporting the integration of custom electronic designs with their enclosures. The company paid £5m in cash on a debt free, cash free basis funded from existing debt facilities, equating to an EV/CY21 sales multiple of 1.7x and an EV/EBIT multiple of 6.3x (vs discoverIE on 1.7x and 14.1x FY22 respectively).
Upgrading EPS by 1% in FY23/FY24
In CY21, CDT generated revenue of £2.9m and underlying operating profit of £0.8m (28% margin vs 16% Sensing & Connectivity margin in FY22). We upgrade our underlying EPS forecasts by 1.0% in FY23 and 1.2% in FY24. Our net debt forecast at the end of FY23 increases from £32.9m to £37.9m and our FY23 year-end net debt/EBITDA forecast increases from 0.6x to 0.7x.
Valuation: M&A to accelerate margin expansion
The stock now trades in line with the average of its broader UK electronics peer group on a P/E basis for FY23 but is well below industrial peers with a similar decentralised operating model (such as Halma and Spirax). The focus on strategic growth markets supports sustained organic revenue growth and we see potential for upside to earnings through operating margin expansion and accretive acquisitions. The company has headroom for further acquisitions, with pro-forma gearing of 0.7x well below the target range of 1.5–2.0x, a recently expanded credit facility and a strong pipeline of opportunities.
Changes to forecasts
Exhibit 1: Changes to forecasts
£m |
FY23e old |
FY23e new |
Change |
y-o-y |
FY24e old |
FY24e new |
Change |
y-o-y |
Revenues |
400.4 |
402.6 |
0.5% |
6.2% |
412.4 |
415.3 |
0.7% |
3.2% |
EBITDA |
58.7 |
59.3 |
1.0% |
5.7% |
60.2 |
61.0 |
1.3% |
2.8% |
EBITDA margin |
14.7% |
14.7% |
0.1% |
(0.1%) |
14.6% |
14.7% |
0.1% |
(0.1%) |
Underlying operating profit |
43.7 |
44.3 |
1.3% |
7.0% |
45.0 |
45.8 |
1.7% |
3.3% |
Underlying operating margin |
10.9% |
11.0% |
0.1% |
0.1% |
10.9% |
11.0% |
0.1% |
0.0% |
Normalised operating profit |
46.1 |
46.7 |
1.2% |
4.2% |
47.4 |
48.2 |
1.7% |
3.1% |
Normalised operating margin |
11.5% |
11.6% |
0.1% |
(0.2%) |
11.5% |
11.6% |
0.1% |
(0.0%) |
Underlying PBT |
39.7 |
40.1 |
1.0% |
6.5% |
41.3 |
41.8 |
1.2% |
4.3% |
Normalised PBT |
42.1 |
42.5 |
0.9% |
3.6% |
43.7 |
44.2 |
1.1% |
4.1% |
Normalised net income |
31.4 |
31.7 |
0.9% |
3.0% |
32.6 |
33.0 |
1.1% |
4.1% |
Normalised diluted EPS (p) |
32.0 |
32.3 |
0.9% |
0.5% |
33.0 |
33.4 |
1.1% |
3.6% |
Underlying diluted EPS (p) |
30.1 |
30.4 |
1.0% |
3.4% |
31.2 |
31.6 |
1.2% |
3.8% |
Reported basic EPS (p) |
15.7 |
16.0 |
1.9% |
(40.9%) |
16.9 |
17.3 |
2.2% |
7.9% |
Dividend per share (p) |
11.2 |
11.2 |
0.0% |
3.2% |
11.5 |
11.5 |
0.0% |
3.1% |
Net (debt)/cash |
(32.9) |
(37.9) |
15.3% |
25.5% |
(22.9) |
(27.6) |
20.9% |
(27.1%) |
Net debt/EBITDA (x) |
0.6 |
0.7 |
0.4 |
0.5 |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
297.9 |
302.8 |
379.2 |
402.6 |
415.3 |
EBITDA |
|
|
43.6 |
44.0 |
56.1 |
59.3 |
61.0 |
Normalised operating Profit (before am, SBP and except.) |
31.6 |
31.9 |
44.8 |
46.7 |
48.2 |
||
Underlying operating Profit (before am. and except.) |
29.8 |
30.8 |
41.4 |
44.3 |
45.8 |
||
Amortisation of acquired intangibles |
(9.0) |
(11.1) |
(14.0) |
(16.5) |
(16.5) |
||
Exceptionals |
(4.3) |
(2.6) |
(6.5) |
(3.0) |
(3.0) |
||
Share-based payments |
(1.8) |
(1.1) |
(3.4) |
(2.4) |
(2.4) |
||
Operating Profit |
16.5 |
17.1 |
20.9 |
24.8 |
26.3 |
||
Net Interest |
(4.3) |
(3.6) |
(3.8) |
(4.2) |
(4.0) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
41.0 |
42.5 |
44.2 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
17.1 |
20.6 |
22.3 |
Tax |
(3.3) |
(4.0) |
(7.4) |
(5.2) |
(5.7) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
30.8 |
31.7 |
33.0 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
9.7 |
15.3 |
16.6 |
||
Discontinued operations |
5.4 |
2.5 |
15.5 |
0.0 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
30.8 |
31.7 |
33.0 |
||
Net income (FRS 3) |
14.3 |
12.0 |
25.2 |
15.3 |
16.6 |
||
Ave. Number of Shares Outstanding (m) |
84.0 |
88.8 |
93.0 |
95.7 |
96.2 |
||
EPS - normalised & diluted (p) |
|
|
25.1 |
23.4 |
32.1 |
32.3 |
33.4 |
EPS - underlying, diluted (p) |
|
|
24.4 |
22.4 |
29.4 |
30.4 |
31.6 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
27.1 |
16.0 |
17.3 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
26.3 |
15.6 |
16.8 |
Dividend per share (p) |
3.0 |
10.15 |
10.80 |
11.15 |
11.50 |
||
EBITDA Margin (%) |
14.6 |
14.5 |
14.8 |
14.7 |
14.7 |
||
Normalised operating margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.8 |
11.6 |
11.6 |
||
discoverIE underlying operating margin (%) |
10.0 |
10.2 |
10.9 |
11.0 |
11.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
236.4 |
244.6 |
326.5 |
323.9 |
312.1 |
Intangible Assets |
182.2 |
190.8 |
263.3 |
257.8 |
243.3 |
||
Tangible Assets |
46.3 |
45.9 |
45.4 |
48.3 |
51.0 |
||
Deferred tax assets |
7.9 |
7.9 |
17.8 |
17.8 |
17.8 |
||
Current Assets |
|
|
197.4 |
183.6 |
196.8 |
200.4 |
211.1 |
Stocks |
68.4 |
67.7 |
77.8 |
86.0 |
88.8 |
||
Debtors |
90.1 |
84.9 |
78.0 |
86.0 |
88.8 |
||
Cash |
36.8 |
29.2 |
39.4 |
26.7 |
32.0 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(120.9) |
(127.5) |
(131.0) |
Creditors |
(94.0) |
(102.2) |
(114.2) |
(120.8) |
(124.3) |
||
Lease liabilities |
(5.3) |
(4.8) |
(4.7) |
(4.7) |
(4.7) |
||
Short term borrowings |
(4.3) |
(0.8) |
(2.0) |
(2.0) |
(2.0) |
||
Long Term Liabilities |
|
|
(129.7) |
(112.0) |
(112.0) |
(100.7) |
(89.5) |
Long term borrowings |
(93.8) |
(75.6) |
(67.6) |
(62.6) |
(57.6) |
||
Lease liabilities |
(14.7) |
(16.7) |
(16.4) |
(15.7) |
(15.0) |
||
Other long term liabilities |
(21.2) |
(19.7) |
(28.0) |
(22.4) |
(16.9) |
||
Net Assets |
|
|
200.5 |
208.4 |
290.4 |
296.1 |
302.6 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
42.5 |
44.6 |
54.0 |
Net Interest |
(3.7) |
(3.1) |
(3.3) |
(3.7) |
(3.5) |
||
Tax |
(6.4) |
(7.2) |
(7.1) |
(10.8) |
(11.2) |
||
Capex |
(6.3) |
(3.9) |
(6.2) |
(9.0) |
(9.0) |
||
Acquisitions/disposals |
(73.6) |
(20.5) |
(46.8) |
(11.0) |
(2.0) |
||
Financing |
53.9 |
(6.6) |
46.1 |
(7.2) |
(7.2) |
||
Dividends |
(8.1) |
(2.8) |
(9.4) |
(10.4) |
(10.9) |
||
Net Cash Flow |
3.8 |
12.7 |
15.8 |
(7.6) |
10.3 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(30.3) |
(37.9) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1.8) |
1.4 |
1.1 |
0.0 |
0.0 |
||
Closing net cash/(debt) |
|
|
(61.3) |
(47.2) |
(30.3) |
(37.9) |
(27.6) |
Source: discoverIE, Edison Investment Research
|
|
Research: Investment Companies
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