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Last close As at 26/05/2023
GBP7.84
▲ 1.00 (0.13%)
Market capitalisation
GBP755m
Research: TMT
discoverIE saw an acceleration in organic growth in Q219, resulting in H119 organic growth of 4% y-o-y. Both divisions grew organically during the period, with better demand in the UK driving a step-up in organic growth for Custom Supply in Q2. Organic bookings growth of 4% for H1 supports the outlook for H2 and we maintain our estimates.
discoverIE Group |
Broad-based demand drives strong Q2 trading |
Trading update |
Electronic & electrical equipment |
15 October 2018 |
Share price performance
Business description
Next events
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discoverIE saw an acceleration in organic growth in Q219, resulting in H119 organic growth of 4% y-o-y. Both divisions grew organically during the period, with better demand in the UK driving a step-up in organic growth for Custom Supply in Q2. Organic bookings growth of 4% for H1 supports the outlook for H2 and we maintain our estimates.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/17 |
338.2 |
17.8 |
19.9 |
8.5 |
19.1 |
2.2 |
03/18 |
387.9 |
22.6 |
23.0 |
9.0 |
16.5 |
2.4 |
03/19e |
422.5 |
25.3 |
25.0 |
9.5 |
15.2 |
2.5 |
03/20e |
433.8 |
26.5 |
25.9 |
9.8 |
14.7 |
2.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Organic growth for both divisions in H119
In H119, group revenues of £213.0m grew 12% y-o-y, ahead of our 10.9% growth forecast. At constant exchange rates (CER), growth was 13% (4% organic, 9% from acquisitions). The group saw CER organic growth of 5% in Q2, up from 3% in Q1. The Design & Manufacturing (D&M) division grew 21% CER and 5% organically, to make up 61% of H119 revenues (£129.9m vs our £127.2m forecast). The division saw strong growth in most areas and the previously flagged weakness in Chinese solar-related sales for Santon stabilised during the period. Custom Supply (CS) revenue grew 2% CER/organic, with Q2 organic growth of 4% versus 1% in Q1, helped by better trading in the UK. Gross margin improved in the period.
Bookings growth supports forecasts
The group saw year-on-year bookings growth of 13% CER and 4% organic, and the order book at the end of H119 was 18% higher y-o-y CER and 13% organically, providing support to H219 forecasts. The board believes the company is on track to deliver full year earnings in line with its expectations and noted that it has an active pipeline of acquisition opportunities. We make no change to forecasts at this point pending H119 results on 4 December.
Valuation: At an 11% discount to peer group
Reflecting general equity market weakness over the last week, the stock is trading on a P/E of 15.2x for FY19e, at an 11% discount to its peer group average. With continuing growth and higher margins, further progress in increasing the weighting of business towards D&M (including accretive acquisitions), combined with good control over the profitability of the CS business should help to close the valuation gap further. The stock is also supported by a dividend yield of more than 2%.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
177.4 |
211.6 |
271.1 |
287.7 |
338.2 |
387.9 |
422.5 |
433.8 |
Cost of Sales |
(123.0) |
(148.6) |
(186.7) |
(195.1) |
(227.2) |
(261.2) |
(283.1) |
(290.6) |
||
Gross Profit |
54.4 |
63.0 |
84.4 |
92.6 |
111.0 |
126.7 |
139.4 |
143.1 |
||
EBITDA |
|
|
7.4 |
9.1 |
16.6 |
19.8 |
24.3 |
29.3 |
34.1 |
35.2 |
Operating Profit (before am, SBP and except.) |
|
6.1 |
7.7 |
14.0 |
17.0 |
20.6 |
25.2 |
29.2 |
30.4 |
|
Operating Profit (before am. and except.) |
|
5.5 |
7.1 |
13.4 |
16.3 |
20.0 |
24.5 |
28.4 |
29.5 |
|
Amortisation of acquired intangibles |
(0.7) |
(1.0) |
(2.1) |
(2.8) |
(3.9) |
(4.9) |
(6.0) |
(6.0) |
||
Exceptionals |
(3.4) |
(0.9) |
(5.2) |
(2.1) |
(8.4) |
(1.1) |
(3.2) |
(3.2) |
||
Share-based payments |
(0.6) |
(0.6) |
(0.6) |
(0.7) |
(0.6) |
(0.7) |
(0.8) |
(0.9) |
||
Operating Profit |
1.4 |
5.2 |
6.1 |
11.4 |
7.7 |
18.5 |
19.2 |
20.2 |
||
Net Interest |
(0.5) |
(0.8) |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.9) |
(3.9) |
||
Profit Before Tax (norm) |
|
|
5.6 |
6.9 |
12.4 |
15.2 |
17.8 |
22.6 |
25.3 |
26.5 |
Profit Before Tax (FRS 3) |
|
|
0.7 |
4.2 |
4.3 |
9.4 |
4.8 |
15.8 |
15.1 |
16.1 |
Tax |
1.4 |
(0.5) |
(1.4) |
(2.2) |
(1.3) |
(4.0) |
(3.8) |
(4.0) |
||
Profit After Tax (norm) |
4.6 |
6.0 |
10.0 |
11.8 |
13.6 |
17.1 |
19.0 |
19.9 |
||
Profit After Tax (FRS 3) |
2.1 |
3.7 |
2.9 |
7.2 |
3.5 |
11.8 |
11.3 |
12.1 |
||
Average Number of Shares Outstanding (m) |
39.2 |
43.1 |
57.6 |
63.3 |
65.4 |
70.8 |
72.9 |
73.3 |
||
EPS - normalised & diluted (p) |
|
|
11.3 |
13.1 |
16.4 |
17.8 |
19.9 |
23.0 |
25.0 |
25.9 |
EPS - IFRS basic (p) |
|
|
(4.8) |
3.0 |
5.0 |
11.4 |
5.3 |
16.7 |
15.5 |
16.5 |
EPS - IFRS diluted (p) |
|
|
(4.7) |
2.8 |
4.8 |
10.9 |
5.1 |
15.8 |
14.9 |
15.7 |
Dividend per share (p) |
6.2 |
6.8 |
7.6 |
8.1 |
8.5 |
9.0 |
9.5 |
9.8 |
||
Gross Margin (%) |
30.7 |
29.8 |
31.1 |
32.2 |
32.8 |
32.7 |
33.0 |
33.0 |
||
EBITDA Margin (%) |
4.2 |
4.3 |
6.1 |
6.9 |
7.2 |
7.6 |
8.1 |
8.1 |
||
Operating Margin (before am, SBP and except.) (%) |
3.4 |
3.6 |
5.2 |
5.9 |
6.1 |
6.5 |
6.9 |
7.0 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
30.9 |
33.1 |
88.6 |
108.4 |
122.2 |
144.2 |
139.4 |
133.0 |
Intangible Assets |
24.2 |
25.5 |
69.9 |
88.2 |
100.7 |
115.0 |
108.9 |
102.8 |
||
Tangible Assets |
3.1 |
3.5 |
13.8 |
14.7 |
16.0 |
23.4 |
24.7 |
24.4 |
||
Deferred tax assets |
3.6 |
4.1 |
4.9 |
5.5 |
5.5 |
5.8 |
5.8 |
5.8 |
||
Current Assets |
|
|
81.8 |
92.7 |
127.3 |
128.3 |
148.4 |
166.2 |
176.9 |
178.7 |
Stocks |
19.3 |
19.4 |
39.8 |
42.9 |
50.1 |
60.6 |
66.0 |
68.9 |
||
Debtors |
44.7 |
48.3 |
60.2 |
65.5 |
77.3 |
82.4 |
89.1 |
92.7 |
||
Cash |
17.8 |
18.1 |
26.7 |
19.9 |
21.0 |
21.9 |
20.5 |
15.8 |
||
Current Liabilities |
|
|
(50.9) |
(58.3) |
(62.1) |
(61.7) |
(78.1) |
(93.4) |
(101.6) |
(104.0) |
Creditors |
(46.6) |
(51.5) |
(61.9) |
(60.9) |
(77.1) |
(87.0) |
(95.2) |
(97.6) |
||
Short term borrowings |
(4.3) |
(6.8) |
(0.2) |
(0.8) |
(1.0) |
(6.4) |
(6.4) |
(6.4) |
||
Long Term Liabilities |
|
|
(10.3) |
(19.0) |
(61.1) |
(73.1) |
(68.7) |
(87.7) |
(82.8) |
(69.8) |
Long term borrowings |
(1.7) |
(9.5) |
(45.5) |
(57.2) |
(50.0) |
(67.9) |
(62.9) |
(57.9) |
||
Other long term liabilities |
(8.6) |
(9.5) |
(15.6) |
(15.9) |
(18.7) |
(19.8) |
(19.9) |
(11.9) |
||
Net Assets |
|
|
51.5 |
48.5 |
92.7 |
101.9 |
123.8 |
129.3 |
131.9 |
137.8 |
CASH FLOW |
||||||||||
Operating Cash Flow |
|
|
5.7 |
6.1 |
6.6 |
14.6 |
20.5 |
21.7 |
28.4 |
29.3 |
Net Interest |
(0.6) |
(0.8) |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.9) |
(3.9) |
||
Tax |
(1.4) |
(0.9) |
(3.3) |
(4.3) |
(3.0) |
(3.7) |
(5.3) |
(5.6) |
||
Capex |
(1.3) |
(1.4) |
(2.5) |
(2.3) |
(3.4) |
(4.3) |
(6.0) |
(4.5) |
||
Acquisitions/disposals |
(0.5) |
(9.2) |
(37.3) |
(19.8) |
(11.8) |
(25.4) |
(3.0) |
(8.0) |
||
Financing |
5.7 |
0.1 |
52.7 |
0.0 |
13.6 |
(1.5) |
0.0 |
(0.0) |
||
Dividends |
(2.3) |
(2.7) |
(3.6) |
(4.9) |
(5.2) |
(6.2) |
(6.6) |
(7.0) |
||
Net Cash Flow |
5.3 |
(8.8) |
11.0 |
(18.5) |
7.9 |
(22.0) |
3.6 |
0.3 |
||
Opening net cash/(debt) |
|
|
6.3 |
11.8 |
1.8 |
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(48.8) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.2 |
(1.2) |
(31.8) |
(0.6) |
0.2 |
(0.4) |
0.0 |
0.0 |
||
Closing net cash/(debt) |
|
|
11.8 |
1.8 |
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(48.8) |
(48.5) |
Source: discoverIE, Edison Investment Research
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Research: Industrials
H118 results were broadly in line with our expectations and Carbios retains sufficient cash to finance its business until H219. The company continues to make progress with its transformation from a research body to a commercial enterprise. We expect the first commercial revenues from Carbiolice in 2020. Our DCF indicates a valuation for Carbios of €15/share.
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