Currency in GBP
Last close As at 26/05/2023
GBP7.84
▲ 1.00 (0.13%)
Market capitalisation
GBP755m
Research: TMT
discoverIE reported resilient trading through H121, with a revenue decline of 6% y-o-y, noting that sales in target markets performed significantly ahead of other sectors. Order intake improved through Q2 and the book-to-bill ratio for September was above 1x. With increased confidence in its outlook and a strong balance sheet, the company intends to reinstate the dividend with interims in November and has resumed its M&A strategy with the acquisition of a high margin US sensors business.
discoverIE Group |
Dividend and M&A back on the agenda |
H121 trading update |
Electronic & electrical equipment |
16 October 2020 |
Share price performance
Business description
Next events
Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
discoverIE reported resilient trading through H121, with a revenue decline of 6% y-o-y, noting that sales in target markets performed significantly ahead of other sectors. Order intake improved through Q2 and the book-to-bill ratio for September was above 1x. With increased confidence in its outlook and a strong balance sheet, the company intends to reinstate the dividend with interims in November and has resumed its M&A strategy with the acquisition of a high margin US sensors business.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/19 |
438.9 |
28.4 |
28.4 |
9.6 |
22.5 |
1.5 |
03/20 |
466.4 |
34.6 |
31.8 |
3.0 |
20.1 |
0.5 |
03/21e |
460.5 |
28.8 |
23.7 |
10.4 |
27.0 |
1.6 |
03/22e |
494.8 |
36.2 |
29.9 |
10.7 |
21.4 |
1.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Book-to-bill ratio above 1x since September
H121 revenue declined 6% y-o-y on a reported and constant exchange rate (CER) basis and 8% on an organic CER basis. Design and Manufacturing (D&M) revenue was 3% lower (CER) and 7% lower on an organic CER basis while Custom Supply declined 10% y-o-y (CER). Order intake has improved through Q221, with September orders ahead of sales and up 6% organically year-on-year and October orders at a similar level and ahead of sales. The book-to-bill ratio for H121 increased to 0.97:1 in Q2 from 0.85:1 in Q1, resulting in an H121 book-to-bill of 0.91:1. The company announced its intention to resume paying a dividend and expects to declare an interim dividend when it reports interims on 30 November.
Back on the acquisition trail
discoverIE has acquired the trade and assets of Phoenix America, a US-based designer and manufacturer of magnetically actuated sensors, for $11.0m/£8.5m in cash with a three-year cash earn-out of up to $1.5m/£1.2m. The business will operate within the Variohm business cluster in the D&M division. In CY19, Phoenix generated revenue of $6.4m/£4.9m and adjusted operating profit of $1.25m/£1.0m (20% margin vs FY20 D&M margin of 13%). discoverIE had reduced net debt to a gearing ratio (net debt/EBITDA) of 1.05x at the end of H121 from 1.25x at end FY20; on a pro-forma basis, this deal increases the gearing back to 1.25x at end H121 leaving plenty of headroom for further cash-funded acquisitions. We plan to update our forecasts with interim results.
Valuation: Focus returns to long-term strategy
The stock has bounced back 69% from the low it reached in March and is up 12% year-to-date. discoverIE continues to trade at a c 23% discount to its peer group on a P/E basis. The stock is supported by a dividend yield approaching 2%. Aside from continuing recovery in customer demand, we view the key trigger for earnings and share price upside to be progress in increasing the weighting of the business towards the higher growth, higher margin D&M business, which in turn should move the company closer to its 12.5% medium-term operating margin target.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
271.1 |
287.7 |
338.2 |
387.9 |
438.9 |
466.4 |
460.5 |
494.8 |
Cost of Sales |
(186.7) |
(195.1) |
(227.2) |
(261.2) |
(293.9) |
(309.7) |
(306.3) |
(327.5) |
||
Gross Profit |
84.4 |
92.6 |
111.0 |
126.7 |
145.0 |
156.7 |
154.3 |
167.2 |
||
EBITDA |
|
|
16.6 |
19.8 |
24.3 |
29.3 |
37.0 |
50.9 |
46.0 |
53.6 |
Operating Profit (before am, SBP and except.) |
|
14.0 |
17.0 |
20.6 |
25.2 |
31.8 |
38.9 |
33.8 |
41.2 |
|
Operating Profit (before am. and except.) |
|
13.4 |
16.3 |
20.0 |
24.5 |
30.6 |
37.1 |
31.4 |
38.8 |
|
Amortisation of acquired intangibles |
(2.1) |
(2.8) |
(3.9) |
(4.9) |
(5.9) |
(9.0) |
(11.0) |
(11.0) |
||
Exceptionals |
(5.2) |
(2.1) |
(8.4) |
(2.3) |
(2.0) |
(4.3) |
(3.2) |
(3.6) |
||
Share-based payments |
(0.6) |
(0.7) |
(0.6) |
(0.7) |
(1.2) |
(1.8) |
(2.4) |
(2.4) |
||
Operating Profit |
6.1 |
11.4 |
7.7 |
17.3 |
22.7 |
23.8 |
17.2 |
24.2 |
||
Net Interest |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.4) |
(4.3) |
(5.1) |
(5.1) |
||
Profit Before Tax (norm) |
|
|
12.4 |
15.2 |
17.8 |
22.6 |
28.4 |
34.6 |
28.8 |
36.2 |
Profit Before Tax (FRS 3) |
|
|
4.3 |
9.4 |
4.8 |
14.6 |
19.3 |
19.5 |
12.0 |
19.1 |
Tax |
(1.4) |
(2.2) |
(1.3) |
(4.0) |
(4.7) |
(5.2) |
(3.0) |
(4.7) |
||
Profit After Tax (norm) |
10.0 |
11.8 |
13.6 |
17.1 |
21.5 |
27.6 |
21.7 |
27.4 |
||
Profit After Tax (FRS 3) |
2.9 |
7.2 |
3.5 |
10.6 |
14.6 |
14.3 |
9.1 |
14.4 |
||
Ave. Number of Shares Outstanding (m) |
57.6 |
63.3 |
65.4 |
70.8 |
73.0 |
84.0 |
89.1 |
89.5 |
||
EPS - normalised & diluted (p) |
|
|
16.4 |
17.8 |
19.9 |
23.0 |
28.4 |
31.8 |
23.7 |
29.9 |
EPS - IFRS basic (p) |
|
|
5.0 |
11.4 |
5.3 |
15.0 |
20.0 |
17.0 |
10.2 |
16.1 |
EPS - IFRS diluted (p) |
|
|
4.8 |
10.9 |
5.1 |
14.2 |
19.4 |
16.5 |
9.9 |
15.7 |
Dividend per share (p) |
7.6 |
8.1 |
8.5 |
9.0 |
9.6 |
3.0 |
10.4 |
10.7 |
||
Gross Margin (%) |
31.1 |
32.2 |
32.8 |
32.7 |
33.0 |
33.6 |
33.5 |
33.8 |
||
EBITDA Margin (%) |
6.1 |
6.9 |
7.2 |
7.6 |
8.4 |
10.9 |
10.0 |
10.8 |
||
Operating Margin (before am, SBP and except.) (%) |
5.2 |
5.9 |
6.1 |
6.5 |
7.2 |
8.3 |
7.3 |
8.3 |
||
discoverIE adjusted operating margin (%) |
4.9 |
5.7 |
5.9 |
6.3 |
7.0 |
8.0 |
6.8 |
7.8 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
88.6 |
108.4 |
122.2 |
136.4 |
149.2 |
236.4 |
217.7 |
200.8 |
Intangible Assets |
69.9 |
88.2 |
100.7 |
107.2 |
119.7 |
182.2 |
171.1 |
160.0 |
||
Tangible Assets |
13.8 |
14.7 |
16.0 |
23.4 |
24.4 |
46.3 |
38.7 |
32.9 |
||
Deferred tax assets |
4.9 |
5.5 |
5.5 |
5.8 |
5.1 |
7.9 |
7.9 |
7.9 |
||
Current Assets |
|
|
127.3 |
128.3 |
147.1 |
165.9 |
179.1 |
197.4 |
212.4 |
226.8 |
Stocks |
39.8 |
42.9 |
48.8 |
58.1 |
66.2 |
68.4 |
71.9 |
75.9 |
||
Debtors |
60.2 |
65.5 |
77.3 |
84.6 |
88.7 |
90.1 |
97.2 |
103.0 |
||
Cash |
26.7 |
19.9 |
21.0 |
21.9 |
22.9 |
36.8 |
41.2 |
45.8 |
||
Current Liabilities |
|
|
(62.1) |
(61.7) |
(78.1) |
(94.0) |
(96.0) |
(103.6) |
(108.5) |
(115.4) |
Creditors |
(61.9) |
(60.9) |
(77.1) |
(87.6) |
(94.3) |
(94.0) |
(98.9) |
(105.8) |
||
Lease liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(5.3) |
(5.3) |
(5.3) |
||
Short term borrowings |
(0.2) |
(0.8) |
(1.0) |
(6.4) |
(1.7) |
(4.3) |
(4.3) |
(4.3) |
||
Long Term Liabilities |
|
|
(61.1) |
(73.1) |
(68.7) |
(81.5) |
(97.6) |
(129.7) |
(114.0) |
(95.3) |
Long term borrowings |
(45.5) |
(57.2) |
(50.0) |
(67.9) |
(84.5) |
(93.8) |
(88.8) |
(83.8) |
||
Lease liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(14.7) |
(8.1) |
(1.5) |
||
Other long term liabilities |
(15.6) |
(15.9) |
(18.7) |
(13.6) |
(13.1) |
(21.2) |
(17.1) |
(10.0) |
||
Net Assets |
|
|
92.7 |
101.9 |
122.5 |
126.8 |
134.7 |
200.5 |
207.6 |
216.9 |
CASH FLOW |
||||||||||
Operating Cash Flow |
|
|
6.6 |
14.6 |
20.5 |
21.7 |
30.0 |
48.0 |
38.4 |
48.8 |
Net Interest |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.4) |
(3.7) |
(5.1) |
(5.1) |
||
Tax |
(3.3) |
(4.3) |
(3.0) |
(3.7) |
(3.8) |
(6.4) |
(7.1) |
(8.8) |
||
Capex |
(2.5) |
(2.3) |
(3.4) |
(4.3) |
(5.4) |
(6.3) |
(4.5) |
(6.5) |
||
Acquisitions/disposals |
(37.3) |
(19.8) |
(11.8) |
(25.4) |
(22.4) |
(73.6) |
(3.0) |
(3.0) |
||
Financing |
52.7 |
0.0 |
13.6 |
(1.5) |
0.1 |
53.9 |
(6.6) |
(6.6) |
||
Dividends |
(3.6) |
(4.9) |
(5.2) |
(6.2) |
(6.7) |
(8.1) |
(2.8) |
(9.3) |
||
Net Cash Flow |
11.0 |
(18.5) |
7.9 |
(22.0) |
(11.6) |
3.8 |
9.4 |
9.5 |
||
Opening net cash/(debt) |
|
|
1.8 |
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(63.3) |
(61.3) |
(51.9) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(31.8) |
(0.6) |
0.2 |
(0.4) |
0.7 |
(1.8) |
(0.0) |
(0.0) |
||
Closing net cash/(debt) |
|
|
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(63.3) |
(61.3) |
(51.9) |
(42.3) |
Source: discoverIE, Edison Investment Research
|
|
Research: Investment Companies
The handover of Witan Pacific (WPC) to Baillie Gifford (BG) on 16 September 2020, following the board’s decision and favourable shareholders’ vote, marks the trust’s transition to the new asset manager. BG won the mandate with its proposal to transform the Asia Pacific growth and income trust into a pure China equity growth strategy. The manager considers that ‘still misunderstood and underinvested’ China (a c 2.5% allocation in 2019 global portfolios) is the key global growth market of the 21st century, and that global investors who miss out on the present China opportunity run the major risk of being left behind.
Get access to the very latest content matched to your personal investment style.