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Last close As at 02/06/2023
GBP7.90
▲ 2.00 (0.25%)
Market capitalisation
GBP759m
Research: TMT
discoverIE’s trading update for the four months to 31 January 2022 confirmed a continuation of the strong trading momentum reported in H122 and management expects FY22 underlying EPS for continuing operations to be ahead of board expectations, despite ongoing supply chain issues. We have upgraded our underlying diluted EPS forecasts by 4% in FY22 and 2% in FY23.
discoverIE Group |
Continued order strength drives upgrades |
Trading update |
Tech hardware & equipment |
10 February 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’s trading update for the four months to 31 January 2022 confirmed a continuation of the strong trading momentum reported in H122 and management expects FY22 underlying EPS for continuing operations to be ahead of board expectations, despite ongoing supply chain issues. We have upgraded our underlying diluted EPS forecasts by 4% in FY22 and 2% in FY23.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/20 |
297.9 |
27.3 |
25.1 |
2.97 |
34.9 |
0.3% |
03/21 |
302.8 |
28.3 |
23.4 |
10.15 |
37.4 |
1.2% |
03/22e |
371.9 |
37.3 |
28.8 |
10.75 |
30.4 |
1.2% |
03/23e |
391.2 |
39.4 |
29.6 |
11.15 |
29.6 |
1.3% |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Continuing operations only (PBT and diluted EPS for FY20 are Edison estimates until further data are reported).
Continued strong momentum in H222 to date
Orders in the four-month period were up 18% y-o-y on an organic basis and up 30% versus two years ago. The order book at the end of January was £216m, over 65% higher than a year and two years ago. Revenue was 34% higher y-o-y at constant exchange rates (CER), with organic growth of 20% y-o-y and 17% versus two years ago. For the 10 months to the end of January (10M22), organic order growth was 42% y-o-y and 32% versus 10M20; 10M22 revenue growth was 28% year-on-year CER and, on an organic basis, 17% y-o-y and 12% versus 10M20. The Vertec SA disposal completed in January and management expects the Acal BFi disposal to complete this quarter – both are already accounted for as discontinued operations. Net debt/underlying EBITDA at the end of January was 0.9x on a pro forma basis (ie treating both disposals as completed, annualising acquisitions), well below the target range of 1.5–2.0x.
Upgrading forecasts
discoverIE also disclosed its new divisional structure, with the business split into two groups: Magnetics & Controls and Sensing & Connectivity. The new structure aligns business units by technology area, enabling greater collaboration between business units and giving better visibility to the group’s growth initiatives (the management and structure of each business unit is unchanged). Our revised forecasts reflect the new structure and better than expected revenue and orders year to date; underlying diluted EPS increases by 4% in FY22 and 2% in FY23.
Valuation: Reflects growth potential
While the stock trades towards the upper end of its peer group on a P/E basis, the focus on strategic growth markets supports sustained organic revenue growth and we see potential for upside to earnings through expansion of operating margins and accretive acquisitions. The disposal of the Custom Supply business provides the company with resources to fund further acquisitions and frees up management to fully focus on the growth of the Design & Manufacturing businesses.
Changes to forecasts
Exhibit 1: Changes to forecasts
£m |
FY22e old |
FY22e new |
Change |
y-o-y |
FY23e old |
FY23e new |
Change |
y-o-y |
Revenues |
365.9 |
371.9 |
1.6% |
22.8% |
388.1 |
391.2 |
0.8% |
5.2% |
Gross margin |
38.0% |
38.0% |
(0.0%) |
(0.0%) |
38.0% |
38.0% |
0.0% |
0.0% |
EBITDA |
52.0 |
54.0 |
3.9% |
22.7% |
56.5 |
56.9 |
0.8% |
5.4% |
EBITDA margin |
14.2% |
14.5% |
0.3% |
(0.0%) |
14.6% |
14.5% |
(0.0%) |
0.0% |
Underlying operating profit |
38.0 |
39.1 |
2.9% |
26.9% |
41.2 |
41.8 |
1.5% |
7.0% |
Underlying operating margin |
10.4% |
10.5% |
0.1% |
0.3% |
10.6% |
10.7% |
0.1% |
0.2% |
Normalised operating profit |
40.4 |
41.5 |
2.7% |
30.0% |
43.2 |
43.8 |
1.5% |
5.6% |
Normalised operating margin |
11.0% |
11.2% |
0.1% |
0.6% |
11.1% |
11.2% |
0.1% |
0.0% |
Underlying PBT |
33.6 |
34.9 |
3.9% |
28.3% |
36.6 |
37.4 |
2.3% |
7.3% |
Normalised PBT |
36.0 |
37.3 |
3.6% |
31.8% |
38.6 |
39.4 |
2.1% |
5.7% |
Normalised net income |
26.6 |
27.6 |
3.6% |
27.9% |
28.4 |
29.0 |
2.1% |
5.1% |
Normalised diluted EPS (p) |
27.8 |
28.8 |
3.6% |
22.9% |
28.9 |
29.6 |
2.1% |
2.8% |
Underlying diluted EPS (p) |
25.9 |
26.9 |
3.9% |
19.6% |
27.4 |
28.1 |
2.3% |
4.3% |
Reported basic EPS (p) |
15.1 |
16.1 |
6.9% |
19.2% |
13.3 |
13.9 |
4.9% |
(13.6%) |
Dividend per share (p) |
10.8 |
10.8 |
0.0% |
5.9% |
11.2 |
11.2 |
0.0% |
3.7% |
Net (debt)/cash |
(42.8) |
(42.0) |
(1.9%) |
(11.0%) |
(38.8) |
(37.1) |
(4.5%) |
(11.7%) |
Net debt/EBITDA (x) |
0.9 |
0.8 |
0.8 |
0.7 |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
297.9 |
302.8 |
371.9 |
391.2 |
Cost of Sales |
(197.8) |
(187.7) |
(230.6) |
(242.5) |
||
Gross Profit |
100.1 |
115.1 |
141.3 |
148.7 |
||
EBITDA |
|
|
43.6 |
44.0 |
54.0 |
56.9 |
Operating Profit (before am, SBP and except.) |
|
31.6 |
31.9 |
41.5 |
43.8 |
|
Operating Profit (before am. and except.) |
|
29.8 |
30.8 |
39.1 |
41.8 |
|
Amortisation of acquired intangibles |
(9.0) |
(11.1) |
(14.5) |
(16.5) |
||
Exceptionals |
(4.3) |
(2.6) |
(7.8) |
(3.0) |
||
Share-based payments |
(1.8) |
(1.1) |
(2.4) |
(2.0) |
||
Operating Profit |
16.5 |
17.1 |
16.8 |
22.3 |
||
Net Interest |
(4.3) |
(3.6) |
(4.2) |
(4.4) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
37.3 |
39.4 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
12.6 |
17.9 |
Tax |
(3.3) |
(4.0) |
(3.3) |
(4.7) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
27.6 |
29.0 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
9.3 |
13.2 |
||
Discontinued operations |
5.4 |
2.5 |
5.6 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
27.6 |
29.0 |
||
Net income (FRS 3) |
14.3 |
12.0 |
14.9 |
13.2 |
||
Ave. Number of Shares Outstanding (m) |
84.0 |
88.8 |
92.6 |
94.8 |
||
EPS - normalised & diluted (p) |
|
|
25.1 |
23.4 |
28.8 |
29.6 |
EPS - underlying, diluted (p) |
|
|
23.5 |
22.5 |
26.9 |
28.1 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
16.1 |
13.9 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
15.5 |
13.4 |
Dividend per share (p) |
3.0 |
10.2 |
10.8 |
11.2 |
||
Gross Margin (%) |
33.6 |
38.0 |
38.0 |
38.0 |
||
EBITDA Margin (%) |
14.6 |
14.5 |
14.5 |
14.5 |
||
Operating Margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.2 |
11.2 |
||
discoverIE adjusted operating margin (%) |
10.0 |
10.2 |
10.5 |
10.7 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
236.4 |
245.0 |
277.5 |
262.4 |
Intangible Assets |
182.2 |
191.2 |
222.3 |
206.3 |
||
Tangible Assets |
46.3 |
45.9 |
47.3 |
48.2 |
||
Deferred tax assets |
7.9 |
7.9 |
7.9 |
7.9 |
||
Current Assets |
|
|
197.4 |
183.6 |
215.6 |
225.1 |
Stocks |
68.4 |
67.7 |
81.5 |
85.7 |
||
Debtors |
90.1 |
84.9 |
102.9 |
108.2 |
||
Cash |
36.8 |
29.2 |
29.4 |
29.3 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(130.4) |
(136.6) |
Creditors |
(94.0) |
(102.2) |
(124.8) |
(131.0) |
||
Lease liabilities |
(5.3) |
(4.8) |
(4.8) |
(4.8) |
||
Short term borrowings |
(4.3) |
(0.8) |
(0.8) |
(0.8) |
||
Long Term Liabilities |
|
|
(129.7) |
(112.0) |
(97.0) |
(82.7) |
Long term borrowings |
(93.8) |
(75.6) |
(70.6) |
(65.6) |
||
Lease liabilities |
(14.7) |
(16.7) |
(16.1) |
(15.5) |
||
Other long term liabilities |
(21.2) |
(19.7) |
(10.3) |
(1.6) |
||
Net Assets |
|
|
200.5 |
208.8 |
265.7 |
268.2 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
42.4 |
51.5 |
Net Interest |
(3.7) |
(3.1) |
(3.6) |
(3.8) |
||
Tax |
(6.4) |
(7.2) |
(9.7) |
(10.4) |
||
Capex |
(6.3) |
(3.9) |
(8.5) |
(8.5) |
||
Acquisitions/disposals |
(73.6) |
(20.5) |
(52.7) |
(7.0) |
||
Financing |
53.9 |
(6.6) |
46.7 |
(6.7) |
||
Dividends |
(8.1) |
(2.8) |
(9.5) |
(10.2) |
||
Net Cash Flow |
3.8 |
12.7 |
5.2 |
4.9 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(42.0) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1.8) |
1.4 |
0.0 |
0.0 |
||
Closing net cash/(debt) |
|
|
(61.3) |
(47.2) |
(42.0) |
(37.1) |
Source: discoverIE, Edison Investment Research
|
|
Research: Industrials
Solid State’s trading update this morning notes that the strong performance achieved in both the Systems and the Components divisions during H122 has been maintained so far during H2 despite continued supply chain disruption. Consensus FY22 and FY23 adjusted PBT estimates have both been raised by 10%.
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