discoverIE Group — Focused on sustainable growth

discoverIE Group (LSE: DSCV)

Currency in GBP

Last close As at 02/02/2023

GBP8.56

9.00 (1.06%)

Market capitalisation

GBP816m

Research: TMT

discoverIE Group — Focused on sustainable growth

discoverIE reported another strong set of results for H123 despite ongoing supply chain challenges, with 14% y-o-y organic revenue growth, 37% EPS growth and a record end-H1 order book. As the company is on track to achieve underlying earnings for FY23 in line with board expectations, our FY23 and FY24 underlying EPS forecasts are broadly unchanged. The company is refining its ESG strategy and has announced its net zero commitments (scope 1 and 2 carbon emissions by 2030, scope 3 by 2040), having already reduced emissions by 40% since CY19 (like-for-like).

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

discoverIE Group

Focused on sustainable growth

H123 results

Tech hardware and equipment

1 December 2022

Price

830p

Market cap

£800m

$1.20:€1.16:£1

Net debt (£m) at end H123

45.2

Shares in issue

96.4m

Free float

96%

Code

DSCV

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

11.4

5.1

(17.3)

Rel (local)

4.3

1.7

(19.6)

52-week high/low

1,060p

597p

Business description

discoverIE is a leading international designer and manufacturer of customised electronics to industry, supplying customer-specific electronic products and solutions to original equipment manufacturers.

Next events

Trading update

January 2023

Analyst

Katherine Thompson

+44 (0)203 077 5730

discoverIE Group is a research client of Edison Investment Research Limited

discoverIE reported another strong set of results for H123 despite ongoing supply chain challenges, with 14% y-o-y organic revenue growth, 37% EPS growth and a record end-H1 order book. As the company is on track to achieve underlying earnings for FY23 in line with board expectations, our FY23 and FY24 underlying EPS forecasts are broadly unchanged. The company is refining its ESG strategy and has announced its net zero commitments (scope 1 and 2 carbon emissions by 2030, scope 3 by 2040), having already reduced emissions by 40% since CY19 (like-for-like).

Year

end

Revenue
(£m)

PBT*
(£m)

Diluted EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/21

302.8

27.2

22.4

10.15

37.0

1.2

03/22

379.2

37.6

29.4

10.80

28.2

1.3

03/23e

426.1

42.2

31.7

11.45

26.2

1.4

03/24e

438.9

43.7

32.9

12.00

25.2

1.4

Note: *PBT and EPS as per discoverIE’s underlying metric, excluding amortisation of acquired intangibles and exceptional items.

H123: Further organic growth and margin expansion

discoverIE reported revenue growth of 26% y-o-y for H123, of which 14% was organic. Despite cost inflation and supply chain challenges, gross margins were maintained and underlying operating profit increased 42%, with the operating margin increasing 1.4pp y-o-y to 11.7%. Underlying EPS increased 37% y-o-y to 17.8p. Net debt of £45.2m at the end of H123 resulted in net debt/EBITDA of 0.8x (well below the target range of 1.5–2.0x) and the company announced a 6% increase in the interim dividend to 3.55p.

Record order book supports forecasts

Order intake has moderated since the exceptional growth seen in H122 but the record end-H123 order book (+21% y-o-y organic) provides good support to forecasts as it unwinds over H223 and FY24. Management anticipates achieving underlying earnings for FY23 in line with board expectations. We have increased our FY23 and FY24 revenue and underlying operating profit forecasts on better H123 performance, offset by higher net interest costs and in FY23, a slightly higher tax rate, leaving our EPS forecasts essentially unchanged.

Valuation: Factoring in more accretive acquisitions

While the stock is trading at a premium to the average of its broader UK industrial technology peer group on a P/E basis for FY23, it trades at a discount compared to peers with a similar decentralised operating model (such as Halma and Spirax). 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 ample headroom for further acquisitions and a strong pipeline of opportunities, which could well be boosted by the current uncertain macroeconomic environment.

Investment summary

Designing and manufacturing innovative electronics for industry

discoverIE is a leading designer and manufacturer of components for electronic applications. Over the last 12 years, the company has broadened its product range, customer base and geographical presence via a series of acquisitions. It designs and manufactures differentiated products, and expansion along the supply chain is helping the company to expand operating margins. discoverIE intends to continue to grow organically and via acquisition while maintaining its focus on higher-margin business. To grow revenues well ahead of GDP, it is focused on four structural growth markets: renewable energy, transportation, medical and industrial & connectivity. Its capital-light business model supports strong cash flow generation, with the aim of increasingly self-funding acquisitions. The company is refining its ESG strategy, recently announcing net zero commitments, which should enable it to grow on a sustainable basis.

Financials: EPS forecasts broadly unchanged

discoverIE reported robust H123 results: revenue was 26% higher y-o-y (23% constant currency, 14% organic), underlying operating profit was 42% higher and underlying EPS 37% higher. Magnetics & Controls reported 17% organic growth and a 13.2% underlying operating margin (+1.1pp y-o-y); Sensing & Connectivity saw 11% organic growth and a 16.3% underlying operating margin (+0.2pp). Management anticipates delivering underlying earnings in line with board expectations for FY23. We have revised our forecasts to reflect H123 performance. We raise our revenue and underlying operating profit forecasts, which are offset by increases in interest costs and in FY23, a slightly higher tax rate. We have raised our dividend forecasts for both years, bringing them closer to the historical 6% annual growth rate

Valuation: Accretive acquisitions to accelerate earnings growth

The stock has declined c 17% over the last year, in line with the market, and continues to trade towards the top end of its broader UK industrial technology peer group on a P/E basis. However, it trades at a discount compared to peers with a similar decentralised operating model (such as Halma and Spirax). 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 of 0.8x at the end of H123 well below the target range of 1.5–2.0x, a recently expanded credit facility and a strong pipeline of opportunities.

Sensitivities: Economy, currency, pricing and acquisitions

Our estimates and discoverIE’s share price will be sensitive to the following factors. Customer demand: demand will be influenced by the economic environment in Europe and increasingly in North America and Asia. Supply chain: raw materials and components are sourced globally so the company must manage around availability. Currency: with 90% of revenues generated in currencies other than sterling, discoverIE is exposed to the translation of euro, US dollar and Nordic-denominated subsidiary results into sterling. Pricing: discoverIE’s revenues and profitability are sensitive to its ability to include in price quotes engineering time spent on designing customer solutions. The company normally passes through supplier price increases and tariffs. Acquisitions: discoverIE expects to make further acquisitions, which could add integration risk, and larger deals may require equity funding.

Company description: Innovative custom electronics

discoverIE designs and manufactures customised electronics for industry, with operations throughout Europe and increasingly outside Europe. The last 12 years have seen the integration of a series of acquisitions and a focus on growing the percentage of higher-margin specialist products, resulting in higher profitability.

Company history

discoverIE was founded in 1986 and was admitted to the official list of the LSE in 1994 as a pure distributor of electronic components. After a change in management in 2009, through its strategy of specialisation the company has transitioned to become a designer and manufacturer of customised electronics with operations in Europe, Asia and North America. The company has made a series of design and manufacturing acquisitions since 2011 – we provide further detail in Exhibit 9. discoverIE sold its Custom Supply distribution business in FY22 and is now fully focused on higher margin design and manufacturing. The group has c 5,000 employees across 20 countries.

Business model

discoverIE specialises in the design and manufacture of technically demanding, bespoke electronics for industrial applications and is focused on four target markets comprising 77% of group sales – renewables, electrification of transportation, medical and industrial & connectivity – all of which are long-term structural growth markets. The market for niche electronic components is very fragmented and discoverIE mainly competes against small, privately owned, country-specific manufacturers in one or two technology areas. The company expects to continue its active role in consolidating this market.

Industrial focus leads to longer product cycles

discoverIE’s components are used in both the design and production phases of a customer’s product, where they tend to be a small but essential part of the systems they are designed into. discoverIE’s engineers work with its customers throughout their product development process, from design concept to volume manufacturing. Once the new product moves into production, discoverIE supplies on a volume basis for the life of the product. We highlight that discoverIE is focused on industrial OEMs and does not serve the consumer electronics market (which tends to be highly commoditised with short lifetime products and often highly cyclical sales). A customer will typically take six to 24 months to move a product from design to production, at which point the company should earn revenues for the life of the product, typically five to seven years.

Manufacturing footprint optimised for cost and flexibility

discoverIE’s custom electronic products are either designed uniquely or modified from an existing product. More than 80% of products are manufactured at 30 sites across 20 countries (principal facilities in China, India, Mexico, the Netherlands, Poland, Sri Lanka, Thailand and the UK), with the remainder manufactured by third-party contractors. This enables the company to support customers operating internationally and provides flexibility in the event that a manufacturing facility encounters challenges. discoverIE spends c 2% of revenue per annum on its manufacturing facilities to support organic growth and another 2% on R&D.

Raw materials comprise largest proportion of product cost

The majority of products are manufactured in-house from raw materials and base components. Energy costs represent less than 1% of group revenue, as operations are mainly manual or semi-automated.

Diverse range of custom electronic products

Mainly through acquisition, discoverIE has built up its design and manufacturing capability in four areas of technology: sensors, magnetics, controls and connectivity. Since the sale of the Custom Supply business in FY22 (see Fully focused on Design & Manufacturing) the remaining design and manufacturing business has been reported through two divisions: Magnetics & Controls and Sensing & Connectivity. Exhibit 1 shows the companies and brands reported within each division. Magnetics & Controls consists of eight businesses across 17 countries with 20 manufacturing sites. Sensing & Connectivity consists of 13 businesses across nine countries with 10 manufacturing sites.

Exhibits 2 and 3 show the progression of revenue in each division and the timing of acquisitions.

Exhibit 1: Businesses by division

Source: discoverIE

Exhibit 2: Magnetics & Controls: Revenue and acquisitions

Source: discoverIE

Exhibit 3: Sensing & Connectivity: Revenue and acquisitions

Source: discoverIE

Group strategy

The group is focused on markets with sustainable growth prospects and increasing electronic content where there is an essential need for its products. It invests in initiatives and businesses that enhance design opportunities for customised products in targeted long-term structural growth markets.

Management has transformed the company into a technology-led provider of customised electronics for industrial applications with design and manufacturing capabilities. The company has the following strategic objectives:

Grow sales well ahead of GDP over the economic cycle by focusing on the structural growth markets that form the company’s target markets.

Improve operating margins by moving up the value chain into higher-margin products.

Acquire businesses with attractive growth prospects and strong operating margins.

Further internationalise the business by developing operations in North America and Asia.

Generate strong cash flows from a capital-light model and deliver long-term sustainable returns, while progressing towards net zero carbon emissions and reducing the group’s impact on the environment.

To track progress with these objectives, the company has set key strategic indicators (KSIs) and key financial performance indicators (KPIs), which we discuss in more detail later in this report.

Experienced board supports growth ambitions

To support its growth ambitions, discoverIE has constructed a board with substantial experience in acquisitions and international growth. Executive directors include Nick Jefferies (CEO since 2009) and Simon Gibbins (CFO since 2010). The board is chaired by Bruce Thompson (non-executive director (NED) at discoverIE since 2018, ex-Diploma CEO 1996–2018, non-executive chairman at Avon Protection). Non-executive directors include Tracey Graham (also NED at Ibstock, Close Brothers Group, Nationwide Building Society and Link Scheme), Clive Watson (ex-group FD of Spectris 2006–19, NED at Breedon Group, Kier Group and Trifast, ex-audit chair of Spirax Sarco for 11 years) and Rosalind Kainyah (runs ESG consultancy Kina Advisory, NED at GEM Diamonds and CalBank, previously VP external affairs & CSR at Tullow Oil).

Group executive management includes the CEO and CFO supported by group commercial directors for Sensing & Connectivity (Paul Hill) and Magnetics & Controls (Martin Pangels), group head of corporate development (Jeremy Morcom) and group general counsel and company secretary (Greg Davidson).

Tracking strategic progress

Exhibit 4 summarises the steady progress discoverIE is making against its KSIs. We discuss below how it is meeting its strategic objectives. Data for H122, FY22 and H123 is for continuing operations only.

Exhibit 4: KSIs – updated targets

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22*

H122*

H123*

FY25 Target

Increase underlying operating margin

4.9%

5.7%

5.9%

6.3%

7.0%

8.0%

7.7%

10.9%

10.3%

11.7%

13.5%

Build sales beyond Europe

12%

17%

19%

19%

21%

27%

28%

40%

38%

41%

45%

Sales from target markets

N/A

N/A

56%

62%

66%

68%

70%

76%

77%

77%

85%

Reduce carbon emissions (cumulative from CY19 continuing operations)

N/A

N/A

N/A

N/A

N/A

N/A

(6%)

(33%)

N/A

c (40%)

(65%)**

Source: discoverIE. Note: *Continuing operations only. ** Target year is CY25; increased from 50%, but now measured from CY21 on an absolute basis (equivalent to a c 75% cut from CY19 on the old basis).

Expanding operating margins

discoverIE started life as a pure distributor of electronic components, but through a strategy of specialisation and acquisition it has transitioned to become a designer and manufacturer of customised electronic solutions. Since 2011, the company has acquired 20 businesses with design and manufacturing capabilities; these are typically much higher margin than the original distribution business, with recent acquisitions generating operating margins of 20%+.

The charts below show the financial performance of the continuing business over the last five years and our forecasts for FY23–24. FY21 results were affected by pandemic-related demand weakness, although the underlying operating margin remained flat in FY21. The margin increased 1.4pp y-o-y in H123 to 11.7% and was 0.8pp higher than the 10.9% achieved in FY22. The target is for a 13.5% underlying operating margin by FY25, to be achieved through a combination of organic growth and higher-margin acquisitions.

For FY24, we estimate that a 0.5pp organic increase in underlying operating margin from our current 11.2% forecast would increase our underlying EPS forecast by c 5%.

Exhibit 5: Revenue growth, FY18–24e

Exhibit 6: Underlying operating profit, FY18–24e

Source: discoverIE

Source: discoverIE

Exhibit 5: Revenue growth, FY18–24e

Source: discoverIE

Exhibit 6: Underlying operating profit, FY18–24e

Source: discoverIE

Build sales beyond Europe

Sales beyond Europe increased from 38% of total revenue in H122 to 40% in FY22 and 41% in H123, benefiting from Beacon’s US exposure (see High-margin acquisitions). Exhibit 7 shows organic revenue growth by geography in H123. Partly due to supply chain challenges over the last few years, there is an ongoing trend to re-shore or near-shore manufacturing. The decline in China revenues is a combination of this and ongoing COVID shutdowns. On the contrary, growth in India reflects customers setting up production there to take advantage of the country’s India-first strategy.

Exhibit 7: H123 organic revenue growth by country

Source: discoverIE

Targeting high-growth markets

As part of the group’s goal to grow revenue well ahead of GDP on an organic basis, discoverIE is targeting higher-growth markets. These are markets that are exhibiting structural growth and depend on technology for product development, resulting in increasing electronic content. discoverIE aims to supply essential products to OEMs in these markets. With the increasing focus on ESG by investors and consumers alike, the company is keen that its target markets also align with the United Nations’ Sustainable Development Goals (SDGs).1

  UN SDGs: 17 goals adopted by all UN member states in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.

The table below describes the four target markets, the growth prospects of each market and examples of products that discoverIE provides for each market.

Exhibit 8: Targeted growth markets

Source: discoverIE, Edison Investment Research

In H123, the business generated 77% of its revenues from these four areas (FY22: 76%, FY21: 70%) and is targeting this to grow to 85% by FY25. Typically, growth from target markets exceeds other markets, as evidenced by the six-year organic CAGR of 12% and 7% respectively. In H123, this situation was partially reversed, with growth from target markets of 14% compared to growth of 17% from other markets. The company saw a 20% increase in three target markets but a 6% decline in renewables revenues, mainly due to weaker demand from wind turbine manufacturers, while other markets showed a strong recovery from a lower base. However, the company believes that the slowdown in the wind sector is temporary and remains confident of its long-term growth prospects driven by decarbonisation trends.

While the company does not actively stop supplying customers in non-target markets, it encourages each business to focus its sales efforts on target markets and builds this approach into acquired companies’ three-year plans. As target markets typically grow faster than non-target markets, over time the contribution from target markets should grow as a percentage of total revenue. The focus on these structural growth markets should provide some insulation against any shorter-term economic slowdown.

Acquisitions core to growth strategy

From 2011 discoverIE started to make a series of acquisitions of companies with design and manufacturing capabilities (see Exhibit 9 below). The company has a dedicated M&A team focused on developing and pursuing opportunities.

Criteria for acquisition targets

discoverIE’s focus for future acquisitions is to target design and manufacturing companies with commercially viable technologies that can be applied to its target markets or with complementary product(s) and/or geographical capability supplying common markets and customers. The preference is to buy businesses that are successful and profitable, with good growth prospects, good margins and similar long-term growth drivers to discoverIE’s focus markets, but which need scaling up.

Integration strategy: Retain entrepreneurial approach

The acquired businesses are led by entrepreneurial managers and discoverIE is keen to retain this culture. To support this, acquired businesses typically continue to operate under their own brands and management, working towards agreed business plans. discoverIE has created technology clusters, where smaller businesses are taken under the wing of a larger business operating in the same product area. At the same time, they are able to take advantage of being part of the larger group, with access to the wider discoverIE customer base, support for product development and manufacturing, centralised finance and administrative support. Efficiency improvements are achieved through knowledge-sharing among the businesses and group guidance on best practices. Where appropriate, manufacturing is rationalised to make the most efficient use of the group’s network of manufacturing facilities.

Acquisition track record

The table below summarises the acquisitions the group has made since FY12.

Exhibit 9: Acquisition timeline

Company

Date

Product areas

Operations

Sales

Cost (£m)

Hectronic

Jun 11

Embedded computing

Sweden

Nordic region, US

1.2

MTC

Oct 11

Electro-magnetic shielding

Germany, South Korea

Europe and Asia

2.7

Myrra SAS

Apr 13

Transformers, coils, cores and inductors

France, Poland, China

Europe, Asia, North America, Africa

9.9

Noratel

Jul 14

Low-, medium- and high-power transformers and inductors

Nordic region, China, US, India, Poland, Sri Lanka

Europe, Asia, North America

73.5

Foss

Jan 15

Customised fibre-optic solutions

Norway, Slovakia

Norway, Eastern Europe

12

Flux

Nov 15

Customised magnetic components

Denmark, Thailand

Denmark

4

Contour

Jan 16

Custom cable assemblies and connectors

UK

UK

17.5

Plitron

Feb 16

Custom toroidal transformers

Canada

North America

1.8

Variohm

Jan 17

Electronic sensors, switches and motion measurement systems

UK, Germany

UK, France, Germany, US

13.3

Santon

Feb 18

DC and AC switches and switchgear

Netherlands, UK

Europe, Asia, US

23.7

Cursor Controls Group

Oct 18

Human-to-machine interface technology

UK, Belgium

UK, Europe, North America, Asia

19.0

Hobart

Apr 19

Customised transformers, inductors, magnetics

US, Mexico

North America

11.7

Positek

Apr 19

Sensors

UK

UK, Europe, North America, Asia Pacific

4.2

Sens-Tech

Oct 19

Specialist sensing and data acquisition modules for X-ray and optical detection applications

UK

US, Europe, Asia, UK

58.0

Phoenix

Oct 20

Magnetically actuated sensors, encoders and related products

US

US

8.5

Limitor

Feb 21

Custom thermal safety components including temperature & current sensors, limiters and thermal switches

Germany, Hungary

Europe, US, Asia

13.2

CPI

May 21

Custom, rugged sensors and switches

US

US

8.1

Beacon EmbeddedWorks

Sep 21

Custom system-on-module embedded computing boards & related software

US

US

58.8

Antenova

Sep 21

Antennas and RF modules

UK, Taiwan, US

Europe, US, Asia

18.2

CDT

Jul 22

Customised plastic enclosures for circuit boards and membrane keypads

UK

UK

5.0

Total

387.4

Source: discoverIE

The company has taken a disciplined approach to M&A; based on initial consideration, it has paid an average of 8.2x trailing PBT and 1.4x trailing sales for businesses with average PBT margins of 17.5%. This compares to 20.0x, 2.0x and 10% for discoverIE, respectively.

For H123, the company analysed the current EBIT return on investment (ROI) of all 16 acquisitions that it has owned for more than two years. It measures ROI as annualised operating profit for H123 divided by acquisition cost (upfront consideration, acquisition expenses, earn-out and integration costs). The average EBIT ROI was 21%, well above the group’s 15% target and 2pp higher than for FY22. Thirteen of the acquisitions were at or above the target ROI with the remaining three positive, but below 15%. Two of the underperforming companies have been affected by the shortage of semiconductors and are expected to start to generate better returns as the supply chain normalises, while the third business is now under new management.

Further acquisitions expected

After a brief halt at the height of the pandemic, discoverIE resumed its M&A strategy in October 2020 with the acquisition of Phoenix America (Phoenix). It has since made five more acquisitions and has a pipeline of deals under consideration.

Management considers two types of acquisition: ‘platform’ to create a new position in a technology and/or geography and ‘bolt-on’ to expand the position of an existing business. The company’s M&A director is focused on sourcing new acquisition targets in discoverIE’s key technological and geographical markets, namely companies with design and manufacturing capabilities in any of the group’s technology areas, located in Europe, North America or Asia.

At the end of H123, the company had a net debt position of £45.2m and gearing of 0.8x EBITDA. The company has a £240m revolving credit facility (RCF) due in June 2026, with an option to extend to June 2027. It also has access to an £80m accordion facility; the RCF can be used for acquisitions and working capital. The company targets a gearing range of 1.5–2.0x, suggesting c £70–100m headroom for further acquisitions.

Carbon emissions reduction – new targets set

This was set as an annual test compared to CY19 emissions. For CY21, emissions intensity was 33% below the level in CY19 on a like-for-like basis and the company estimates that this now stands at around 40%. With the new targets set for net zero carbon emissions (see below), the company has increased this target, seeking a 65% reduction in absolute emissions from the level at the end of CY21 by the end of CY25. During H123, the company accelerated its Sri Lankan solar panel installation project: phase 1 is already complete and phases 2 and 3 are expected to be finished in early 2023. Overall the three phases combined should reduce scope 1 and 2 emissions by c 15%. The company has also approved solar panel installation at its factory in Thailand, with completion expected by the end of 2023.

Evolving approach to ESG

At the start of 2020, the board and group executive committee initiated a review of the company’s approach to ESG matters, with the aim of further improving the group’s approach to sustainability. As a result, the company committed to spending £3m over the next five years to resource and deliver its ESG strategy.

Governance structure in place

In November 2021, the company appointed non-executive director, Rosalind Kainyah, with in-depth ESG experience, effective 1 January 2022. She has since established and chairs the sustainability committee (effective 1 April 2022), which includes all board members, to help set the group’s overall strategy and ensure the board has access to the knowledge and skills required in this area. Below this, the group sustainability team drives initiatives throughout the group and liaises with operating companies to consider what is practical and feasible.

Each member of the group executive committee has a specific ESG responsibility and targets within their personal objectives relating to ESG, with a proportion of annual bonus dependent on achievement of those targets. Recently, the company has rolled out ESG objectives to the management of individual operating businesses.

Three overarching aims

The company has set three primary aims for its ESG strategy:

make a positive impact on the environment;

keep staff safe and happy; and

ensure the reliability and sustainability of products.

As well as ongoing initiatives in each area (eg increasing diversity, development and training plans for staff, supplier audits, responsible sourcing policies, enhancing cyber security controls), measurable targets have been set to work towards achieving each aim. See Exhibit 10 for targets and progress to date. We note that the reduction in carbon emissions has also been added as a key strategic indicator for the group.

Exhibit 10: Specific ESG targets

Aim

How measured

Targets

Progress

Minimise negative impact on the environment

Carbon intensity – scope 1&2

50% reduction against 2019 emissions (11.45tCO2e/£m turnover)

End CY21 -33%, end Sept 22 -40%

ISO14001 accreditations

>80% of group’s operations (by revenue) to be covered by an ISO14001 accreditation by 2025

63% by end CY21 (61% end CY20)

Energy audits conducted at group sites

>80% of all group sites to have been subject to an energy audit within the last five years

23% by end CY21 (13% by end CY20)

Company cars

50% to be electric or hybrid by 2025

26% by end CY21 (19% by end CY20)

Keep staff safe
and happy

Proportion of workforce covered by ISO45001 compliant occupational health & safety (H&S) system

>80% to be covered by 2025

5% by end FY21. Bulk of work scheduled for CY23 and CY24.

No. of H&S representatives and trained H&S staff across the group

Maintain a ratio of at least 1:50 trained H&S staff to total employees

1:38 at end CY21 (1:52 end CY20)

Staff turnover

Unplanned staff turnover ≤15% pa

13% in CY21 (10% in CY20)

Ensure the quality and reliability of products

Share of group products covered by an ISO9001 system

Ensure that at least 80% of all products are built in accordance with ISO9001 accredited processes

95% at end CY21 (88% CY20)

Source: discoverIE. Note: All historics adjusted to excluded discontinued operations.

Net zero targets set

With H123 results, the company announced that it had set net zero carbon emission targets (Science Based Targets initiative (SBTi)-aligned). Based on scope 1 and 2 carbon emissions, the company is aiming to reach net zero carbon emissions by 2030. Including scope 3 emissions, it is targeting 2040. Of the 7,745tCO2e scope 1 and 2 emissions in CY21, around 95% came from four emissions sources: purchased electricity, natural gas, company-owned vehicles and refrigerants. To track progress, the company has set the following milestones:

electricity 80% from renewables by 2025 and 100% by 2030;

90% of gas heating to be replaced with electric options by 2030;

all company vehicles to be fully electric by 2030;

all refrigerants removed by 2025; and

energy intensity (kWh/£m revenue) reduced by 10% by 2030.

As the group operates on a decentralised model, it is more time consuming to measure scope 3 emissions from the supply chain, and these are not yet disclosed (scope 3 emissions from the group’s own operations are). The group is undertaking a full screening of scope 3 emissions, which it expects to complete in early 2024, after which it will produce and submit a detailed reduction plan to SBTi .

First time TCFD reporting

In its FY22 annual report, discoverIE published its first Task Force on Climate-Related Financial Disclosures (TCFD) report. The group has undertaken a preliminary assessment of the resilience of its business model and strategy, and potential impact of climate change over the short and medium term. It has concluded that while it may be exposed to certain risks during the transition to a low carbon economy, such risks are considered to be low and more than outweighed by the opportunities presented to the group. In 2022, the company disclosed climate change related information through the Carbon Disclosure Project for the first time.

External reviews validate approach

In April, the company received an ‘A’ rating from MSCI in its 2022 ESG rating assessment. In October, the company received a low-risk rating from Sustainalytics ESG risk rating service.

Financials

Review of H123 results

discoverIE reported H123 revenue growth of 26% (23% CER, 14% organic CER). Organic growth was from a combination of 8% volume growth and 6% price increases (pass through of higher input costs to customers). The company no longer reports gross profit but confirmed that gross margins were maintained despite supply chain challenges and the inflationary environment. This resulted in good operational leverage, with underlying operating profit increasing 42% y-o-y and the margin increasing 1.4pp to 11.7%. The effective tax rate of 26% was slightly higher than our 25.4% expectation, due to the profit mix towards higher-rate territories. With higher share diluted count than a year ago reflecting the September 2021 fund raise, underlying diluted EPS increased 37% yo-y. Reported operating profit, which reflects one-off costs of £0.9m (acquisition and disposal expenses) and amortisation of acquired intangibles of £7.8m, increased 104% y-o-y.

Exhibit 11: H123 results highlights

£m

H123

H122

H122 CER

Reported y-o-y

CER y-o-y

Organic y-o-y

Revenues

219.7

174.3

178.1

26%

23%

14%

Magnetics & controls

136.5

105.4

108.4

30%

26%

17%

Sensing & connectivity

83.2

68.9

69.6

21%

19%

11%

Underlying operating profit

Magnetics & controls

18.0

12.8

13.3

41%

35%

Sensing & connectivity

13.6

11.1

11.3

23%

20%

Unallocated

(6.0)

(5.9)

(5.9)

2%

Total underlying operating profit

25.6

18.0

18.7

42%

37%

Total underlying operating margin

11.7%

10.3%

10.5%

1.3%

Magnetics & controls

13.2%

12.1%

12.3%

1.0%

Sensing & connectivity

16.3%

16.1%

16.2%

0.2%

Reported operating profit

16.9

8.3

104%

Underlying EPS (p) - diluted

17.8

13.0

37%

Reported EPS (p) - diluted

10.9

6.6

65%

Net debt

45.2

75.6

(40%)

Source: discoverIE

Making good progress versus KPIs

Exhibit 12 shows discoverIE’s KPIs and we discuss the performance below.

Exhibit 12: Key performance indicators

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY22 vs FY20

H123

Target

Sales growth: constant exchange rates

36%

14%

6%

11%

14%

8%

0%

29%

27%

23%

Well ahead of GDP

Sales growth: continuing organic

9%

3%

(1%)

11%

10%

5%

(4%)

18%

14%

14%

Underlying EPS growth

31%

10%

13%

16%

22%

11%

(8%)

31%

20%

37%

>10%

Dividend growth

11%

6%

6%

6%

6%

N/A***

6%

6%

N/A

6%

Progressive

ROCE**

12.0%

11.6%

13.0%

13.7%

15.4%

16.0%

14.5%

14.7%

N/A

15.2%

>15%

Operating cash flow generation+

104%

100%

136%

85%

93%

106%

128%

80%

101%++

75%

>85% of underlying operating profit

Free cash flow generation+

22%

64%

101%

58%

94%

104%

136%

77%

102%++

72%

>85% of underlying profit after tax

Source: discoverIE. Note: *Continuing operations only. **Calculated as underlying operating profit (acquisitions annualised) as a percentage of net assets excluding net debt, deferred consideration for discontinued operations and legacy defined pension asset/liability. ***Only interim dividend paid to preserve cash. +Half-year performance based on trailing 12 months. ++Average of FY21 and FY22.

Sales growth: the business has shown strong organic growth since FY18, well ahead of GDP, apart from in COVID-affected FY21. The CAGR of organic revenue since FY18 exceeds 10%. Comparing FY22 organic growth to FY20 illustrates the good progress the company made compared to the pre-pandemic period, with H123 organic growth remaining at a similar level.

EPS growth: excluding FY21, the company has grown underlying EPS at or ahead of its target rate over the measurement period.

Dividend growth: aside from FY20 when the company did not pay a final dividend to preserve cash, discoverIE has grown the dividend every year. The FY23 interim dividend of 3.55p was 6% higher y-o-y and ahead of our 3.45p forecast. The company targets dividend cover (based on underlying EPS) of at least 3x.

ROCE: this dipped below the 15% target in FY21 and FY22 due to recent larger acquisitions and the discontinuation of Custom Supply but beat the target in H123.

Operating cash conversion: reflecting growth of the business and additional inventory purchases (c £6m in H123) to ensure sufficient buffer during this period of supply chain disruption, operating cash conversion dropped below the target level. As this inventory unwinds and growth slows, we expect conversion to increase.

Free cash flow conversion: for similar reasons as for operating cash conversion, free cash flow conversion dropped below the target level. Again, we expect this to increase as working capital requirements reduce. The company set this metric to help it work towards its target of self-funding acquisitions.

Outlook and changes to forecasts

Book-to-bill for H123 was 1.08x versus 1.27x in H122. H123 orders were 5% higher y-o-y at constant exchange rates and 1% lower on an organic basis (after 64% organic growth in H122). The order book at end-H123 of £257m was 21% higher year-on-year on an organic basis. Management expects the order book to gradually unwind as customers take delivery of orders in H223. In H123, design wins with an estimated lifetime value of £154m were 6% ahead of the prior year, with 85% of wins in target markets, and management highlighted a strong ongoing project pipeline.

Management anticipates delivering underlying earnings in line with its expectations for FY23. We have revised our forecasts to reflect H123 performance. We raise our revenue and underlying operating profit forecasts, which are offset by increases in interest costs and in FY23, a slightly higher tax rate. We have raised our dividend forecasts for both years, bringing them closer to the historical 6% annual growth rate.

Exhibit 13: Changes to forecasts

£m

FY23e old

FY23e new

Change

y-o-y

FY24e old

FY24e new

Change

y-o-y

Revenues

414.6

426.1

2.8%

12.4%

425.3

438.9

3.2%

3.0%

EBITDA

61.3

62.3

1.6%

11.1%

62.7

65.4

4.3%

4.9%

EBITDA margin

14.8%

14.6%

(0.2%)

(0.2%)

14.7%

14.9%

0.2%

0.3%

Underlying operating profit

46.3

47.3

2.2%

14.3%

47.5

49.3

3.8%

4.2%

Underlying operating margin

11.2%

11.1%

(0.1%)

0.2%

11.2%

11.2%

0.1%

0.1%

Normalised operating profit

48.7

49.7

2.1%

11.0%

49.9

51.7

3.6%

4.0%

Normalised operating margin

11.7%

11.7%

(0.1%)

(0.1%)

11.7%

11.8%

0.0%

0.1%

Underlying PBT

41.7

42.2

1.3%

12.2%

43.1

43.7

1.4%

3.6%

Normalised PBT

44.1

44.6

1.2%

8.7%

45.5

46.1

1.3%

3.4%

Normalised net income

32.9

33.0

0.4%

7.3%

34.0

34.4

1.3%

4.3%

Normalised diluted EPS (p)

33.5

33.5

(0.0%)

4.2%

34.4

34.7

0.9%

3.7%

Underlying diluted EPS (p)

31.6

31.7

0.0%

7.5%

32.6

32.9

1.0%

3.9%

Reported basic EPS (p)

17.3

17.5

1.5%

(35.3%)*

18.3

19.5

6.3%

11.0%

Dividend per share (p)

11.2

11.5

2.7%

6.0%

11.5

12.0

4.3%

4.8%

Net (debt)/cash

(38.4)

(40.0)

4.3%

32.5%

(26.8)

(27.7)

3.4%

(30.7%)

Net debt/EBITDA (x)

0.7

0.7

0.5

0.5

Source: Edison Investment Research. Note: *FY22 included the profit on sale of Custom Supply. Reported EPS growth is 73% y-o-y on a continuing operations basis.

Valuation

Exhibit 14 shows financial metrics for discoverIE’s peer group and Exhibit 15 shows the valuation metrics. For the peer group, we use companies active in the electronics market and acquisitive industrial companies. The stock has declined c 17% over the last year, in line with the market, and continues to trade towards the top end of its broader UK industrial technology peer group on a P/E basis. However, it trades at a discount compared to peers with a similar decentralised operating model (such as Halma and Spirax). 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 of 0.8x at the end of H123 well below the target range of 1.5–2.0x, a recently expanded credit facility and a strong pipeline of opportunities.

Exhibit 14: Peer group financial metrics

Year end

Share price (p)

Market cap (£m)

Revenue growth (%)

EBITDA margin (%)

EBIT margin (%)

CY

NY

CY

NY

CY

NY

discoverIE

31-Mar

830

800

12.4

3.0

14.6

14.9

11.1

11.2

Diploma

30-Sep

2862

3506

7.6

5.1

20.9

20.9

17.1

17.0

Gooch & Housego

30-Sep

462.5

112

-2.2

13.3

13.4

15.3

7.0

9.2

TT electronics

31-Dec

174

285

24.3

5.2

9.9

10.6

7.0

8.0

XP Power

31-Dec

2090

398

15.7

5.5

20.4

23.1

15.9

17.2

Avon Protection

30-Sep

1171

351

11.8

-4.2

15.1

18.4

8.5

12.1

Halma

31-Mar

2269

8441

15.6

7.5

24.2

24.5

20.5

20.6

Spectris

31-Dec

3311

3399

-1.2

5.7

20.0

20.4

16.0

16.5

Spirax-Sarco Engineering

31-Dec

11405

8332

16.0

11.4

27.3

27.6

23.5

23.7

Average

10.9

6.2

18.9

20.1

14.4

15.5

Source: Edison Investment Research, Refinitiv (as at 28 November)

Exhibit 15: Peer group valuation metrics

EV/sales (x)

EV/EBITDA (x)

EV/EBIT (x)

P/E (x)

Div yield (%)

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

discoverIE

1.8

1.7

12.1

11.5

15.2

14.6

26.2

25.2

1.4

1.4

Diploma

3.6

3.5

17.5

16.6

21.4

20.4

25.5

24.0

1.8

2.0

Gooch & Housego

1.1

0.9

7.8

6.1

15.0

10.1

17.9

12.3

2.7

2.8

TT electronics

0.8

0.7

7.7

6.8

10.9

9.0

10.7

9.1

3.5

3.9

XP Power

1.9

1.8

9.4

7.9

12.1

10.6

12.5

10.5

4.4

4.5

Avon Protection

1.6

1.7

10.8

9.3

19.1

14.1

27.2

18.6

3.5

3.1

Halma

5.2

4.8

21.3

19.7

25.3

23.3

30.8

28.6

0.9

1.0

Spectris

2.9

2.7

14.3

13.2

17.8

16.4

21.6

19.2

2.3

2.4

Spirax-Sarco Engineering

5.6

5.0

20.3

18.1

23.6

21.0

31.4

28.7

1.3

1.4

Average

2.8

2.6

13.6

12.2

18.1

15.6

22.2

18.9

2.6

2.6

Premium/(discount) to average

(37.3)

(35.0)

(11.3)

(5.4)

(16.3)

(6.5)

18.1

33.6

(46.2)

(45.0)

Source: Edison Investment Research, Refinitiv (as at 28 November)

Potential for accretive acquisitions

As we discussed earlier, discoverIE has historically made accretive acquisitions, paying on average 8.2x trailing PBT for companies with an average PBT margin of 17.5% (which we assume is broadly equivalent to operating margin). In recent years, the company has focused on companies with higher margins, typically 20%+. As an illustration of the potential for earnings accretion, if we assume that if discoverIE spends £50m on a company with operating margins of 20% and pays 8x PBT, we estimate that this would increase our FY24 underlying operating margin by 0.6pp to 11.8% and increase our FY24 underlying diluted EPS forecast by 7.5%, while increasing end-FY23 gearing to 1.3x (compared to our current forecast of 0.7x). In the current uncertain macroeconomic environment, management noted that sellers’ price expectations have started to become more realistic.

Sensitivities

Our estimates and the discoverIE share price will be sensitive to the following factors:

Customer demand: Customer demand will be influenced by the economic environment in Europe and, increasingly, the United States and Asia-Pacific. It will also be sensitive to the gain or loss of major customers, although in H123 no customer made up more than 7% of sales.

Supply chain: The company buys raw materials and components from suppliers around the world and will be affected by the availability of these supplies as well as the cost and availability of freight to transport them.

Currency: Translational – with 90% of revenues in non-sterling currencies, discoverIE is exposed to the translation of euro, US dollar and Nordic-denominated subsidiary results into sterling, which reduced growth in sales by 3pp and underlying operating profit by 1.6pp in FY22. Transactional – discoverIE sells mainly in euros, US dollars, sterling and Nordic currencies, and purchases mainly in US dollars and euros. discoverIE hedges with forward contracts to the extent that the exposure cannot be passed to the customer.

Pricing: discoverIE’s revenues and profitability are sensitive to the company’s ability to include within price quotes engineering time spent on designing customer solutions. The company aims to pass through supplier price increases and tariffs, with very few fixed-price contracts.

Acquisitions: The company is likely to make further acquisitions, which could add integration risk and will require funding.

Exhibit 16: Financial summary

£m

2020

2021

2022

2023e

2024e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

297.9

302.8

379.2

426.1

438.9

EBITDA

 

 

43.6

44.0

56.1

62.3

65.4

Normalised operating Profit (before am, SBP and except.)

31.6

31.9

44.8

49.7

51.7

Underlying operating Profit (before am. and except.)

29.8

30.8

41.4

47.3

49.3

Amortisation of acquired intangibles

(9.0)

(11.1)

(14.0)

(16.5)

(15.6)

Exceptionals

(4.3)

(2.6)

(6.5)

(3.0)

(3.0)

Share-based payments

(1.8)

(1.1)

(3.4)

(2.4)

(2.4)

Operating Profit

16.5

17.1

20.9

27.8

30.7

Net Interest

(4.3)

(3.6)

(3.8)

(5.1)

(5.6)

Profit Before Tax (norm)

 

 

27.3

28.3

41.0

44.6

46.1

Profit Before Tax (FRS 3)

 

 

12.2

13.5

17.1

22.7

25.1

Tax

(3.3)

(4.0)

(7.4)

(5.9)

(6.4)

Profit After Tax (norm)

21.8

21.6

30.8

33.0

34.4

Profit After Tax (FRS 3)

8.9

9.5

9.7

16.8

18.7

Discontinued operations

5.4

2.5

15.5

0.0

0.0

Net income (norm)

21.8

21.6

30.8

33.0

34.4

Net income (FRS 3)

14.3

12.0

25.2

16.8

18.7

Ave. Number of Shares Outstanding (m)

84.0

88.8

93.0

95.9

96.6

EPS - normalised & diluted (p)

 

 

25.1

23.4

32.1

33.5

34.7

EPS - underlying, diluted (p)

 

 

24.4

22.4

29.4

31.7

32.9

EPS - IFRS basic (p)

 

 

17.0

13.5

27.1

17.5

19.4

EPS - IFRS diluted (p)

 

 

16.5

13.0

26.3

17.0

18.9

Dividend per share (p)

2.97

10.15

10.80

11.45

12.00

EBITDA Margin (%)

14.6

14.5

14.8

14.6

14.9

Normalised operating margin (before am, SBP and except.) (%)

10.6

10.5

11.8

11.7

11.8

discoverIE underlying operating margin (%)

10.0

10.2

10.9

11.1

11.2

BALANCE SHEET

Fixed Assets

 

 

236.4

244.6

326.5

323.9

312.1

Intangible Assets

182.2

190.8

263.3

257.8

243.3

Tangible Assets

46.3

45.9

45.4

48.3

51.0

Deferred tax assets

7.9

7.9

17.8

17.8

17.8

Current Assets

 

 

197.4

183.6

196.8

208.3

221.1

Stocks

68.4

67.7

77.8

91.0

93.8

Debtors

90.1

84.9

78.0

91.0

93.8

Cash

36.8

29.2

39.4

24.6

31.9

Current Liabilities

 

 

(103.6)

(107.8)

(120.9)

(134.1)

(137.7)

Creditors

(94.0)

(102.2)

(114.2)

(127.4)

(131.0)

Lease liabilities

(5.3)

(4.8)

(4.7)

(4.7)

(4.7)

Short term borrowings

(4.3)

(0.8)

(2.0)

(2.0)

(2.0)

Long Term Liabilities

 

 

(129.7)

(112.0)

(112.0)

(100.6)

(89.6)

Long term borrowings

(93.8)

(75.6)

(67.6)

(62.6)

(57.6)

Lease liabilities

(14.7)

(16.7)

(16.4)

(15.7)

(15.0)

Other long term liabilities

(21.2)

(19.7)

(28.0)

(22.3)

(17.0)

Net Assets

 

 

200.5

208.4

290.4

297.5

305.9

CASH FLOW

Operating Cash Flow

 

 

48.0

56.8

42.5

44.2

58.4

Net Interest

(3.7)

(3.1)

(3.3)

(4.6)

(5.1)

Tax

(6.4)

(7.2)

(7.1)

(11.6)

(11.7)

Capex

(6.3)

(3.9)

(6.2)

(9.0)

(9.0)

Acquisitions/disposals

(73.6)

(20.5)

(46.8)

(11.0)

(2.0)

Financing

53.9

(6.6)

46.1

(7.2)

(7.2)

Dividends

(8.1)

(2.8)

(9.4)

(10.5)

(11.1)

Net Cash Flow

3.8

12.7

15.8

(9.8)

12.3

Opening net cash/(debt)

 

 

(63.3)

(61.3)

(47.2)

(30.2)

(40.0)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

(1.8)

1.4

1.2

0.0

0.0

Closing net cash/(debt)

 

 

(61.3)

(47.2)

(30.2)

(40.0)

(27.7)

Source: discoverIE, Edison Investment Research

Contact details

Revenue by geography

2 Chancellor Court, Occam Road,
Surrey Research Park, Guildford
GU2 7AH
+44 (0)1483 544500
www.discoverieplc.co.uk

Contact details

2 Chancellor Court, Occam Road,
Surrey Research Park, Guildford
GU2 7AH
+44 (0)1483 544500
www.discoverieplc.co.uk

Revenue by geography

Management team

CEO: Nick Jefferies

CFO: Simon Gibbins

Nick joined discoverIE as group chief executive in January 2009. He has held senior positions for over 15 years with leading international distributors of electronic components and computer products, such as Electrocomponents and Arrow Electronics. He originally trained as an electronics design engineer with Racal Defence (now part of Thales).

Simon was appointed as group finance director in July 2010. A chartered accountant, he was previously global head of finance and deputy CFO at Shire. Before joining Shire in 2000, he spent six years with ICI in various senior finance roles, both in the UK and overseas. His earlier career was spent with Coopers & Lybrand in London.

Chairman: Bruce Thompson

Bruce joined discoverIE as a non-executive director in 2018 and was appointed non-executive chairman from 1 November 2022. From 1996–2018 he was the CEO of Diploma. Prior to that, he was a director with Arthur D Little, in the UK and the US.

Management team

CEO: Nick Jefferies

Nick joined discoverIE as group chief executive in January 2009. He has held senior positions for over 15 years with leading international distributors of electronic components and computer products, such as Electrocomponents and Arrow Electronics. He originally trained as an electronics design engineer with Racal Defence (now part of Thales).

CFO: Simon Gibbins

Simon was appointed as group finance director in July 2010. A chartered accountant, he was previously global head of finance and deputy CFO at Shire. Before joining Shire in 2000, he spent six years with ICI in various senior finance roles, both in the UK and overseas. His earlier career was spent with Coopers & Lybrand in London.

Chairman: Bruce Thompson

Bruce joined discoverIE as a non-executive director in 2018 and was appointed non-executive chairman from 1 November 2022. From 1996–2018 he was the CEO of Diploma. Prior to that, he was a director with Arthur D Little, in the UK and the US.

Principal shareholders

(%)

Aberdeen Standard Investments

12.3

BlackRock

6.8

Kempen Capital Management NV

5.4

Montanaro Group

4.3

Impax Asset Management

4.1

Legal & General Investment Management

3.5

Swedbank Robur

3.0


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United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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