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discoverIE Group — Expanding margins and international exposure

discoverIE Group (LSE: DSCV)

Last close As at 15/05/2025

GBP6.25

▲ −10.00 (−1.57%)

Market capitalisation

GBP607m

More on this equity

Research: TMT

discoverIE Group — Expanding margins and international exposure

discoverIE has acquired Cursor Controls Group, a UK-based designer and manufacturer of human-to-machine interface products for £19m in initial cash consideration. Management expects the deal to be immediately earnings enhancing and to boost group operating margins. This acquisition follows the group’s strategy to build the Design & Manufacturing (D&M) business and to grow the proportion of international revenues.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

discoverIE Group

Expanding margins and international exposure

Acquisition

Electronic & electrical equipment

25 October 2018

Price

384p

Market cap

£282m

Net debt (£m) at end FY18

52.4

Shares in issue

73.4m

Free float

96%

Code

DSCV

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.1

(9.9)

21.9

Rel (local)

8.9

0.1

31.9

52-week high/low

455p

300p

Business description

discoverIE (formerly Acal) is a leading international designer and manufacturer of customised electronics to industry, supplying customer-specific electronic products and solutions to 25,000 industrial manufacturers.

Next events

H119 results

4 December 2018

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

discoverIE Group is a research client of Edison Investment Research Limited

discoverIE has acquired Cursor Controls Group, a UK-based designer and manufacturer of human-to-machine interface products for £19m in initial cash consideration. Management expects the deal to be immediately earnings enhancing and to boost group operating margins. This acquisition follows the group’s strategy to build the Design & Manufacturing (D&M) business and to grow the proportion of international revenues.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/17

338.2

17.8

19.9

8.5

19.3

2.2

03/18

387.9

22.6

23.0

9.0

16.7

2.3

03/19e

426.3

25.8

25.5

9.5

15.1

2.5

03/20e

442.5

27.6

26.9

9.8

14.3

2.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Human-to-machine interface (HMI) acquisition

discoverIE has acquired Cursor Controls Group (CCG), a UK-based designer and manufacturer of human-to-machine interface technology that includes trackballs, touchpads, trackpads and ruggedised keyboards. Products are customised for specific applications, with 60% of revenues generated from the medical and industrial sectors. 90% of revenues are generated outside the UK, of which 40% are from America, Asia and other non-EU markets. CCG will operate within the D&M division, and will retain its brand identity and management team.

£19m consideration; immediately EPS enhancing

discoverIE is paying initial cash consideration of £19m on a debt-free/cash-free basis, funded from existing facilities, and will pay out up to £4m in contingent consideration dependent on targets achieved over the three years ended 31 December 2021. In CY17, CCG generated revenues of £7.9m, adjusted operating profit of £2.1m (26% margin) and £0.3m reported PBT. The deal values CCG at 9.0x trailing operating profit, vs 14.5x for discoverIE. We have upgraded our forecasts: revenues +0.9% in FY19 and +2.0% in FY20, and normalised EPS up 1.8% in FY19 and 4.2% in FY20. We estimate that at the end of FY20 net debt/EBITDA will increase from 1.4x to 1.8x.

Valuation: 13% discount to peers

The stock is trading on a P/E of 15.1x 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 Custom Supply 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

426.3

442.5

Cost of Sales

(123.0)

(148.6)

(186.7)

(195.1)

(227.2)

(261.2)

(285.6)

(296.5)

Gross Profit

54.4

63.0

84.4

92.6

111.0

126.7

140.7

146.0

EBITDA

 

 

7.4

9.1

16.6

19.8

24.3

29.3

35.0

37.4

Operating Profit (before am, SBP and except.)

6.1

7.7

14.0

17.0

20.6

25.2

30.2

32.5

Operating Profit (before am. and except.)

 

5.5

7.1

13.4

16.3

20.0

24.5

29.4

31.6

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)

(4.2)

(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

22.4

Net Interest

(0.5)

(0.8)

(1.6)

(1.8)

(2.8)

(2.6)

(4.4)

(5.0)

Profit Before Tax (norm)

 

 

5.6

6.9

12.4

15.2

17.8

22.6

25.8

27.6

Profit Before Tax (FRS 3)

 

 

0.7

4.2

4.3

9.4

4.8

15.8

14.6

17.2

Tax

1.4

(0.5)

(1.4)

(2.2)

(1.3)

(4.0)

(3.6)

(4.3)

Profit After Tax (norm)

4.6

6.0

10.0

11.8

13.6

17.1

19.4

20.7

Profit After Tax (FRS 3)

2.1

3.7

2.9

7.2

3.5

11.8

10.9

12.9

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

25.5

26.9

EPS - IFRS basic (p)

 

 

(4.8)

3.0

5.0

11.4

5.3

16.7

15.0

17.6

EPS - IFRS diluted (p)

 

 

(4.7)

2.8

4.8

10.9

5.1

15.8

14.4

16.8

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

8.2

8.4

Operating Margin (before am, SBP and except.) (%)

3.4

3.6

5.2

5.9

6.1

6.5

7.1

7.4

BALANCE SHEET

Fixed Assets

 

 

30.9

33.1

88.6

108.4

122.2

144.2

158.4

152.0

Intangible Assets

24.2

25.5

69.9

88.2

100.7

115.0

127.9

121.8

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

178.3

181.9

Stocks

19.3

19.4

39.8

42.9

50.1

60.6

66.6

70.3

Debtors

44.7

48.3

60.2

65.5

77.3

82.4

91.1

94.6

Cash

17.8

18.1

26.7

19.9

21.0

21.9

19.3

15.7

Current Liabilities

 

 

(50.9)

(58.3)

(62.1)

(61.7)

(78.1)

(93.4)

(102.4)

(105.9)

Creditors

(46.6)

(51.5)

(61.9)

(60.9)

(77.1)

(87.0)

(96.0)

(99.5)

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)

(99.5)

(86.6)

Long term borrowings

(1.7)

(9.5)

(45.5)

(57.2)

(50.0)

(67.9)

(82.9)

(77.9)

Other long term liabilities

(8.6)

(9.5)

(15.6)

(15.9)

(18.7)

(19.8)

(16.6)

(8.7)

Net Assets

 

 

51.5

48.5

92.7

101.9

123.8

129.3

134.7

141.5

CASH FLOW

Operating Cash Flow

 

 

5.7

6.1

6.6

14.6

20.5

21.7

26.6

31.8

Net Interest

(0.6)

(0.8)

(1.6)

(1.8)

(2.8)

(2.6)

(4.4)

(5.0)

Tax

(1.4)

(0.9)

(3.3)

(4.3)

(3.0)

(3.7)

(5.2)

(5.9)

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)

(22.0)

(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)

(17.6)

1.5

Opening net cash/(debt)

 

 

6.3

11.8

1.8

(19.0)

(38.1)

(30.0)

(52.4)

(70.0)

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)

(70.0)

(68.6)

Source: discoverIE, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by discoverIE Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by discoverIE Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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