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Currency in GBP
Last close As at 28/03/2023
GBP7.69
▲ −7.00 (−0.90%)
Market capitalisation
GBP740m
Research: TMT
discoverIE continued to see strong order intake and sales in the remaining two months of FY22, closing the year ahead of board expectations. FY22 revenue grew 25% y-o-y and on an organic basis, revenue grew 17% and orders by 36%, to end the year with a record order book. We have upgraded our underlying EPS forecasts by 4.0% for FY22 and 2.5% for FY23.
discoverIE Group |
Entering FY23 in a strong position |
FY22 trading update |
Tech hardware & equipment |
19 April 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 continued to see strong order intake and sales in the remaining two months of FY22, closing the year ahead of board expectations. FY22 revenue grew 25% y-o-y and on an organic basis, revenue grew 17% and orders by 36%, to end the year with a record order book. We have upgraded our underlying EPS forecasts by 4.0% for FY22 and 2.5% for FY23.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/20 |
297.9 |
27.3 |
25.1 |
2.97 |
32.1 |
0.4% |
03/21 |
302.8 |
28.3 |
23.4 |
10.15 |
34.4 |
1.3% |
03/22e |
377.7 |
38.7 |
29.8 |
10.75 |
27.0 |
1.3% |
03/23e |
396.4 |
40.8 |
30.5 |
11.15 |
26.4 |
1.4% |
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).
FY22 organic revenue growth of 17%
As trading in the last two months of the year continued to be strong across both divisions, discoverIE expects to report underlying FY22 earnings ahead of the board’s previous expectations. This was despite ongoing supply chain headwinds. FY22 revenue grew 25% (vs our 22.8% forecast) or 28% at constant exchange rates, with an organic revenue growth of 17% y-o-y and 13% versus FY20. Order intake was ahead of revenue, growing 36% y-o-y on an organic basis, and 32% versus FY20 on the same basis. discoverIE closed the year with a record order book worth £224m (organic growth of 62% y-o-y, or 71% vs end FY20). Gearing (net debt/EBITDA) was 0.7x at year-end (vs our 0.8x forecast). The company was recently awarded an ‘A’ rating by MSCI ESG Research, partly in recognition of discoverIE’s focus on sustainable technologies in areas such as renewable energy.
Upgrading forecasts; no material impact from Ukraine
The company noted that the effects of the Ukraine war have been negligible; it has ceased sales into Russia and Belarus (sales into these countries made up <0.2% of FY22 revenue, with nothing sold into Ukraine). It has no companies, facilities or direct employees in those countries and no significant dependency on direct supplies of components or materials either. We have upgraded our forecasts to reflect stronger trading, with revenue upgrades of 1.6% for FY22 and 1.3% for FY23, resulting in underlying EPS upgrades of 4.0% for FY22 and 2.5% for FY23.
Valuation: Reflects growth potential
The stock trades towards the upper end of its broader UK electronics peer group on a P/E basis but trades more in line with peers with a similar decentralised operating model (such as Halma and Diploma). 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 gearing currently well below the target range of 1.5–2.0x, and has a strong pipeline of opportunities.
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 |
371.9 |
377.7 |
1.6% |
24.7% |
391.2 |
396.4 |
1.3% |
5.0% |
Gross margin |
38.0% |
38.0% |
(0.0%) |
(0.0%) |
38.0% |
38.0% |
0.0% |
0.0% |
EBITDA |
54.0 |
55.4 |
2.6% |
25.8% |
56.9 |
58.2 |
2.3% |
5.2% |
EBITDA margin |
14.5% |
14.7% |
0.1% |
0.1% |
14.5% |
14.7% |
0.1% |
0.0% |
Underlying operating profit |
39.1 |
40.5 |
3.6% |
31.4% |
41.8 |
42.7 |
2.2% |
5.6% |
Underlying operating margin |
10.5% |
10.7% |
0.2% |
0.5% |
10.7% |
10.8% |
0.1% |
0.1% |
Normalised operating profit |
41.5 |
42.9 |
3.4% |
34.4% |
43.8 |
45.1 |
3.0% |
5.3% |
Normalised operating margin |
11.2% |
11.3% |
0.2% |
0.8% |
11.2% |
11.4% |
0.2% |
0.0% |
Underlying PBT |
34.9 |
36.3 |
4.0% |
33.4% |
37.4 |
38.4 |
2.5% |
5.7% |
Normalised PBT |
37.3 |
38.7 |
3.7% |
36.7% |
39.4 |
40.8 |
3.3% |
5.3% |
Normalised net income |
27.6 |
28.6 |
3.7% |
32.6% |
29.0 |
30.0 |
3.3% |
4.8% |
Normalised diluted EPS (p) |
28.8 |
29.8 |
3.7% |
27.4% |
29.6 |
30.5 |
3.3% |
2.4% |
Underlying diluted EPS (p) |
26.9 |
28.0 |
4.0% |
24.4% |
28.1 |
28.8 |
2.5% |
2.7% |
Reported basic EPS (p) |
16.1 |
17.2 |
6.9% |
27.4% |
13.9 |
14.6 |
5.1% |
(15.0%) |
Dividend per share (p) |
10.8 |
10.8 |
0.0% |
5.9% |
11.2 |
11.2 |
0.0% |
3.7% |
Net (debt)/cash |
(42.0) |
(37.9) |
(9.9%) |
(19.8%) |
(37.1) |
(31.6) |
(14.7%) |
(16.4%) |
Net debt/EBITDA (x) |
0.8 |
0.7 |
0.7 |
0.6 |
Source: Edison Investment Research. Note: Underlying profit measures exclude exceptional items and amortisation of acquired intangibles.
Exhibit 2: Financial summary
£m |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
297.9 |
302.8 |
377.7 |
396.4 |
Cost of Sales |
(197.8) |
(187.7) |
(234.2) |
(245.7) |
||
Gross Profit |
100.1 |
115.1 |
143.5 |
150.6 |
||
EBITDA |
|
|
43.6 |
44.0 |
55.4 |
58.2 |
Normalised operating Profit (before am, SBP and except.) |
31.6 |
31.9 |
42.9 |
45.1 |
||
Underlying operating Profit (before am. and except.) |
29.8 |
30.8 |
40.5 |
42.7 |
||
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) |
(2.4) |
||
Operating Profit |
16.5 |
17.1 |
18.2 |
23.2 |
||
Net Interest |
(4.3) |
(3.6) |
(4.2) |
(4.4) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
38.7 |
40.8 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
14.0 |
18.9 |
Tax |
(3.3) |
(4.0) |
(3.6) |
(5.0) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
28.6 |
30.0 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
10.4 |
13.9 |
||
Discontinued operations |
5.4 |
2.5 |
5.6 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
28.6 |
30.0 |
||
Net income (FRS 3) |
14.3 |
12.0 |
16.0 |
13.9 |
||
Ave. Number of Shares Outstanding (m) |
84.0 |
88.8 |
92.6 |
94.8 |
||
EPS - normalised & diluted (p) |
|
|
25.1 |
23.4 |
29.8 |
30.5 |
EPS - underlying, diluted (p) |
|
|
23.5 |
22.5 |
28.0 |
28.8 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
17.2 |
14.6 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
16.6 |
14.1 |
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 |
14.7 |
14.7 |
||
Normalised operating margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.3 |
11.4 |
||
discoverIE underlying operating margin (%) |
10.0 |
10.2 |
10.7 |
10.8 |
||
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 |
219.5 |
229.9 |
Stocks |
68.4 |
67.7 |
82.8 |
86.9 |
||
Debtors |
90.1 |
84.9 |
101.4 |
106.4 |
||
Cash |
36.8 |
29.2 |
33.5 |
34.8 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(133.3) |
(139.3) |
Creditors |
(94.0) |
(102.2) |
(127.7) |
(133.7) |
||
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) |
(82.6) |
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) |
(1.5) |
||
Net Assets |
|
|
200.5 |
208.8 |
266.7 |
270.3 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
46.9 |
53.1 |
Net Interest |
(3.7) |
(3.1) |
(3.6) |
(3.8) |
||
Tax |
(6.4) |
(7.2) |
(10.1) |
(10.8) |
||
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 |
9.3 |
6.2 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(37.9) |
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) |
(37.9) |
(31.6) |
Source: discoverIE, Edison Investment Research
|
|
Research: Industrials
Epwin’s FY21 results exceeded our modestly upgraded estimates following a year-end update. The other highlights of the year were confirmed de-leveraging in line with guidance and a confident DPS uplift. Further recovery of industry input cost inflation through margin performance will be keenly watched but we have raised estimates for FY22 and FY23, including a stronger dividend expectation. In our view, the margin and share price risks are now firmly to the upside.
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