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Currency in GBP
Last close As at 02/06/2023
GBP7.90
▲ 2.00 (0.25%)
Market capitalisation
GBP759m
Research: TMT
discoverIE has confirmed that trading in Q119 was in line with expectations and is on track to meet FY19 earnings expectations. The group generated organic revenue growth of 3% y-o-y, with Design & Manufacturing (D&M) at 5% organic growth and Custom Supply (CS) at 1%. Strong 13% organic growth in D&M orders resulted in 20% y-o-y growth in the group order book at end-Q119 and provides good visibility for FY19 revenues. We maintain our forecasts.
discoverIE Group |
Double-digit order growth for D&M |
Q1 trading update |
Electronic & electrical equipment |
27 July 2018 |
Share price performance
Business description
Next events
Analysts
discoverIE Group is a research client of Edison Investment Research Limited |
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discoverIE has confirmed that trading in Q119 was in line with expectations and is on track to meet FY19 earnings expectations. The group generated organic revenue growth of 3% y-o-y, with Design & Manufacturing (D&M) at 5% organic growth and Custom Supply (CS) at 1%. Strong 13% organic growth in D&M orders resulted in 20% y-o-y growth in the group order book at end-Q119 and provides good visibility for FY19 revenues. We maintain our forecasts.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/17 |
338.2 |
17.8 |
19.9 |
8.5 |
21.4 |
2.0 |
03/18 |
387.9 |
22.6 |
23.0 |
9.0 |
18.5 |
2.1 |
03/19e |
422.5 |
25.3 |
25.0 |
9.5 |
17.0 |
2.2 |
03/20e |
433.8 |
26.5 |
25.9 |
9.8 |
16.4 |
2.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q119 trading on track
In Q119, discoverIE saw group revenue growth of 12% y-o-y at constant exchange rates (CER) and 3% on an organic basis. The divisions traded in line with expectations: D&M saw 5% and CS 1% organic revenue growth. D&M saw continuing strong momentum in orders at 13% organic growth, with strong demand across the board. discoverIE’s most recent acquisition, Santon, has seen new design wins in its industrial and transportation businesses, helped by the additional resources and focus now that it is part of the discoverIE group. Santon’s solar business has seen weaker demand since Chinese feed-in tariffs were reduced, but this eventuality was factored into the transaction structure, and the company expects demand to recover over time. Group gross margin was higher y-o-y, in line with our forecasts.
Outlook and estimates unchanged
In Q119, group orders increased by 16% CER and 7% organically. The group order book increased by 20% CER/13% organically y-o-y to £135m at the end of Q119, with c 80% due for delivery in the next 12 months. Management anticipates that it is on track to deliver earnings in line with its expectations; we make no change to forecasts. The company noted that it has an active pipeline of acquisition opportunities.
Valuation: Growing D&M business drives upside
The stock is trading on a P/E of 17.0x for FY19e, at a 13% 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
|
|
Research: TMT
1Spatial has completed an accelerated bookbuild, raising net proceeds of £8m. The funds will be invested in customer acquisition, the repayment of the outstanding overdraft and the ongoing development of the company’s core technology suite. The announcement also confirms trading is in line with expectations and that 1Spatial has won a number of new contracts to provide data management solutions to a UK infrastructure provider. We leave our underlying forecasts unchanged at this stage.
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