discoverIE Group — H1 organic growth supports FY19 outlook

discoverIE Group (LSE: DSCV)

Last close As at 26/02/2024

GBP6.86

−2.00 (−0.29%)

Market capitalisation

GBP663m

More on this equity

Research: TMT

discoverIE Group — H1 organic growth supports FY19 outlook

discoverIE reported H119 revenue growth of 11%, with 7% organic growth and 5% growth from the Santon acquisition offset by a 1% currency effect. Good order intake in H1 provides support for growth in H2 and management sees FY19 trading in line with its expectations. We have revised our forecasts to reflect H1 trading, resulting in upgrades to our normalised EPS forecasts of 3% in FY19e and 2% in FY20e.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

discoverIE Group

H1 organic growth supports FY19 outlook

H119 results

Electronic & electrical equipment

18 December 2018

Price

389p

Market cap

£285m

€1.11:NOK10.98:£1

Net debt (£m) at end H119

62.6

Shares in issue

73.4m

Free float

96%

Code

DSCV

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.6

1.0

3.5

Rel (local)

18.2

10.5

15.1

52-week high/low

455p

325p

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

Q3 trading update

January 2019

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 reported H119 revenue growth of 11%, with 7% organic growth and 5% growth from the Santon acquisition offset by a 1% currency effect. Good order intake in H1 provides support for growth in H2 and management sees FY19 trading in line with its expectations. We have revised our forecasts to reflect H1 trading, resulting in upgrades to our normalised EPS forecasts of 3% in FY19e and 2% in FY20e.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/17

338.2

17.8

19.9

8.5

19.6

2.2

03/18

387.9

22.6

23.0

9.0

16.9

2.3

03/19e

428.5

26.4

26.3

9.5

14.8

2.4

03/20e

445.4

28.0

27.5

10.0

14.2

2.6

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

Organic revenue growth and margin expansion in H1

discoverIE organic revenues grew 7% y-o-y in H119, with 10% growth from Design & Manufacturing and 2% growth from Custom Supply. The Santon acquisition (February 2018) added a further 5% to growth. Both divisions expanded margins year-on-year, resulting in an underlying group operating margin of 6.8%, +0.6pp versus H118. Net debt at the end of H119 was £62.6m, equating to a net debt/ EBITDA ratio of 1.85x. The company proposed an interim dividend of 2.8p per share (+6% y-o-y).

Outlook remains positive; preparing for Brexit

The company saw a 13% constant currency year-on-year increase in orders to close H119 with an order book worth £131m (+18% CER, +13% organic) and a book-to-bill for H1 of 1.03x. Our underlying operating profit forecasts are substantially unchanged. We have revised our forecasts to reflect the reduction in contingent consideration payable to Santon as well as a planned increase in inventory to manage any supply chain disruption relating to Brexit and slightly lower financing costs. This results in small upgrades to our normalised EPS forecasts (+3% FY19e, +2% FY20e), an increase in net debt at end FY19e from £70.0m to £72.7m and a reduction at end FY20e from £68.6m to £65.7m.

Valuation: Growth in D&M business to drive upside

The company continues to make good progress in its strategy to move up the value chain by building higher margin D&M revenues, acquire businesses with good growth and margin potential and internationalise its business. The stock is trading on an EV/EBITDA of 8.9x (at a 9% discount to its peer group) and broadly in line on a P/E basis. 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%.

H119 divisional performance

Exhibit 1: Divisional revenue and profitability (£m)

Revenues

H119

H118

H118 CER

Reported y-o-y

CER y-o-y

Like-for-like

Design & Manufacturing

127.8

108.2

106.7

18%

20%

10%

Custom Supply

83.9

82.0

81.9

2%

2%

2%

Total revenues

211.7

190.2

188.6

11%

12%

7%

Underlying operating profit

Design & Manufacturing

14.2

11.8

11.6

20%

22%

Custom Supply

3.9

3.3

3.3

18%

18%

Unallocated

(3.6)

(3.3)

(3.3)

9%

9%

Total underlying operating profit

14.5

11.8

11.6

23%

25%

Adjusted operating margin

Design & Manufacturing

11.1%

10.9%

10.9%

0.2%

0.2%

Custom Supply

4.6%

4.0%

4.0%

0.6%

0.6%

Total underlying operating margin

6.8%

6.2%

6.2%

0.6%

0.7%

Source: discoverIE

Exhibit 1 summarises divisional performance at the revenue and underlying operating profit level. discoverIE reported H119 year-on-year revenue growth of 11.3%, with 2.3% growth from Custom Supply (CS) and 18.1% growth from Design & Manufacturing (D&M). At constant exchange rates (CER), D&M revenues grew 20%, of which 10% was organic growth and 10% was from acquisitions. As previously flagged, in the summer Santon saw a drop in orders relating to the Chinese solar market after a cut in Chinese feed-in tariffs. Since the end of H119, orders have returned to the pre-tariff cut levels. Geographically, the division saw organic growth of 14% in Germany, 11% in North America and 25% in Asia. The company noted that the imposition of China/US tariffs is likely to have minimal impact on profitability: of the £11m of sales to the US in H1, c £2.5m were manufactured in China and were subject to tariffs of up to 25%. The company is passing on this additional cost to customers. Over time, the company expects to move some of this production to sites in India, Sri Lanka or Thailand.

CS saw reported and organic growth of 2% y-o-y, with Q2 growth of 4%; as well as good growth in continental Europe, the UK returned to growth (+1% for H1, +5% for Q2). Book-to-bill for H1 was 1.01x. Cost-cutting measures taken a couple of years ago combined with revenue growth resulted in operating margin expansion, up 0.6pp to 4.6% and close to the company’s 5% target.

The company continues to target the growth markets of:

Renewable energy

Transportation

Medical

Industrial connectivity

In H119, more than 60% of revenues and 80% of design wins came from these four markets.

Update on key performance and strategic indicators

The company’s strategy is to:

grow sales well ahead of GDP over the economic cycle by focusing on strategic growth markets;

move up the value chain by continuing to build revenues in the higher margin D&M division;

acquire businesses with attractive growth prospects and strong operating margins; and

internationalise the business by developing sales in North America and Asia.

To measure the progress of its strategy, the company tracks key strategic and performance indicators (KSIs and KPIs).

The company made steady progress against KSIs and KPIs in H119. D&M contributed 60% of group revenues. As adjusted operating margins for both divisions have grown and the proportion of higher margin D&M revenues has increased, this has resulted in expanding group operating margins. Sales outside Europe made up 20% of H119 revenues; the pace at which this increases will very much depend on the shape of businesses that discoverIE acquires. The company is very close to hitting its cross-selling target of £10m in annual sales. Operating cash flow generation of 84% was close to the target – the company noted that due to inventory requirements, the D&M business needs more working capital than CS (22% of sales in D&M versus 13% of sales in CS), and as it is growing much faster than CS, the conversion rate of operating cash reduces. Conversely, D&M is much more profitable (c 12% operating margin in D&M vs c 5% in CS) so the return on incremental capital in D&M is much greater.

Exhibit 2: KSIs

FY14

FY15

FY16

FY17

FY18

H119

Mid-term target

Increase Design & Manufacturing revenue

18%

37%

48%

52%

57%

60%

75%

Increase underlying operating margin

3.4%

4.9%

5.7%

5.9%

6.3%

6.8%

8.5%

Build sales beyond Europe

5%

12%

17%

19%

19%

20%

30%

Source: discoverIE

Exhibit 3: KPIs

FY14

FY15

FY16

FY17

FY18

H119

3yr target (FY20)

Sales growth: CER

17%

36%

14%

6%

11%

12%

Sales growth: organic

2%

3%

3%

-1%

6%

7%

Well ahead of GDP

Increase cross-selling

£0.3m

£0.9m

£3.0m

£4.6m

£8.8m

£9.7m*

£10m pa

Underlying EPS growth

20%

31%

10%

13%

16%

24%

>10%

Dividend growth

10%

11%

6%

6%

6%

6%

Progressive

ROCE*

15.2%

12.0%

11.6%

13.0%

13.4%

14.8%

>15%

Operating cash flow generation

100%

104%

100%

136%

85%

84%

>85% of underlying profit

Source: discoverIE. Note: *Annualised.

H119 results review

Exhibit 4: Half-year results highlights

£m

H119

H118

y-o-y

Revenues

211.7

190.2

11.3%

Custom Supply

83.9

82.0

2.3%

Design & Manufacturing

127.8

108.2

18.1%

Gross profit

69.9

61.2

14.2%

Gross margin

33.0%

32.2%

0.8%

Normalised operating profit

Custom Supply

3.9

3.3

18.2%

Design & Manufacturing

14.2

11.8

20.3%

Central costs

(3.1)

(3.0)

3.3%

Total normalised* operating profit

15.0

12.1

24.0%

Normalised operating margin

Custom Supply

4.6%

4.0%

0.6%

Design & Manufacturing

11.1%

10.9%

0.2%

Total

7.1%

6.4%

0.7%

discoverIE underlying** operating profit

14.5

11.8

22.9%

discoverIE underlying operating margin

6.8%

6.2%

0.6%

Reported operating profit

8.1

8.4

(3.6%)

Reported operating margin

3.8%

4.4%

(0.6%)

Normalised PBT

13.3

10.6

25.5%

Normalised net income

10.0

8.0

24.3%

Normalised EPS (dil) - p

13.4

10.7

25.1%

Underlying EPS (dil) - p

13.0

10.5

23.8%

Reported EPS (dil) - p

6.3

6.5

(3.1%)

Dividend - p

2.80

2.65

5.7%

Net cash/(debt)

(62.6)

(37.6)

66.5%

Source: discoverIE, Edison Investment Research *Excludes amortisation of acquired intangibles, exceptional items and share-based payments. ** Excludes amortisation of acquired intangibles and exceptional items.

Helped by organic growth in both divisions, gross margin expanded 0.8pp y-o-y to 33%. Underlying operating profit increased 22.9% y-o-y through a combination of organic revenue growth, higher gross margins and acquisitions. The company incurred exceptional charges of £3.3m: £0.4m relating to acquisitions and a £2.9m provision for a fraud perpetrated against the group in one of its US subsidiaries. Strong and decisive action has been taken to resolve the matter and the group is expecting to recover the loss, which is also covered by insurance. Until then, a provision has been made in respect of the gross loss associated with this.

The company reported an effective tax rate of 27% (acquisition costs are not allowable for tax purposes) and an underlying effective tax rate of 25%. Underlying diluted EPS grew of 23.8% y-o-y.

The company announced an interim dividend of 2.8p per share, 6% higher year-on-year. Management expects to maintain dividend cover of 2–3x underlying EPS, with cover trending towards the upper end of the range to preserve funds for further M&A.

The company ended H119 with net debt of £62.6m compared to £37.6m at the end of H118 and £52.4m at the end of FY18, equating to a net debt/annualised underlying EBITDA of 1.85x, within the company’s targeted range of 1.5–2.0x.

Outlook and changes to forecasts

The company saw a 13% CER year-on-year increase in orders to close H119 with an order book worth £131m (+18% CER, +13% organic) and a book-to-bill for H1 of 1.03x. The estimated lifetime value of design wins in H119 was £126m, +40% y-o-y.

We have revised our estimates to reflect H119 operating performance, including lower than expected finance costs and dilutive share count, and a reduction in the Santon contingent consideration. The end FY18 balance sheet has been restated to reflect a £1.4m reduction in the fair value of assets acquired and a £6.8m reduction in the fair value of consideration. The sellers of Santon have also reimbursed discoverIE the €2.5m paid to cover investment in automation of production facilities.

We have also factored in higher inventory at the end of FY19, reflecting the company’s intention to increase stock to cope with any potential supply chain disruption from Brexit.

Exhibit 5: Changes to estimates

£m

FY19e old

FY19e new

Change

y-o-y

FY20e old

FY20e new

Change

y-o-y

Revenues

426.3

428.5

0.5%

10.5%

442.5

445.4

0.7%

3.9%

Custom supply

167.0

168.0

0.6%

1.7%

168.6

169.7

0.6%

1.0%

Design & manufacturing

259.3

260.5

0.4%

17.0%

273.8

275.7

0.7%

5.8%

Gross margin

33.0%

33.0%

0.0%

0.4%

33.0%

33.0%

0.0%

0.0%

EBITDA

35.0

35.3

0.7%

20.4%

37.4

37.4

0.0%

6.0%

EBITDA margin

8.2%

8.2%

0.0%

0.7%

8.4%

8.4%

(0.1%)

0.2%

Underlying operating profit

29.4

29.4

0.1%

20.1%

31.6

31.6

0.0%

7.6%

Underlying operating profit margin

6.9%

6.9%

(0.0%)

0.5%

7.1%

7.1%

(0.0%)

0.2%

Normalised operating profit

30.2

30.4

0.8%

20.7%

32.5

32.5

0.0%

7.0%

Normalised operating margin

7.1%

7.1%

0.0%

0.6%

7.4%

7.3%

(0.0%)

0.2%

Normalised PBT

25.8

26.4

2.4%

16.9%

27.6

28.0

1.5%

5.9%

Normalised net income

19.4

19.8

2.4%

15.7%

20.7

20.8

0.7%

5.1%

Normalised EPS (p)

25.5

26.3

3.1%

14.1%

26.9

27.5

2.0%

4.7%

Reported EPS (p)

15.0

14.9

(0.3%)

(10.4%)

17.6

17.9

1.6%

19.9%

Net (debt)/cash

(70.0)

(72.7)

3.8%

38.7%

(68.6)

(65.7)

(4.1%)

(9.6%)

Net debt/EBITDA (x)

1.9

2.0

1.8

1.8

Source: Edison Investment Research

Valuation

Exhibit 6 shows valuation metrics for discoverIE’s peer group and Exhibit 7 shows their financial performance. The stock continues to trade at a c 9% discount to the peer group average on EV/EBITDA multiples and is broadly in line based on P/E multiples. Further progress in increasing the weighting of business towards D&M combined with good control over the profitability of the CS business should help to further close the gap.

D&M made up 57% of FY18 revenues and the company is targeting this to reach 75% over the next three to five years. We expect the company to make further accretive acquisitions in the D&M space, which should boost the revenue growth rate and accelerate the growth in operating margins and earnings.

Exhibit 6: Peer group valuation metrics

 

EV/Sales

EV/EBITDA

P/E

Dividend yield

Last yr

This yr

Next yr

Last yr

This yr

Next yr

Last yr

This yr

Next yr

Last yr

This yr

Next yr

discoverIE

0.8

0.7

0.7

10.8

8.9

8.4

16.9

14.8

14.2

2.3%

2.4%

2.6%

Design & manufacturing

Gooch & Housego

2.7

2.3

2.2

16.3

12.1

11.6

22.7

19.9

18.9

0.9%

0.9%

1.0%

TT Electronics

1.0

0.9

0.8

10.5

8.0

6.9

18.2

13.8

11.5

2.9%

3.1%

3.4%

XP Power

2.8

2.4

2.2

11.3

9.5

8.7

15.0

12.6

11.4

3.5%

3.7%

4.0%

Specialist distributors

Diploma

2.7

2.5

2.4

14.8

13.6

13.0

21.3

19.4

18.5

2.1%

2.4%

2.5%

Solid State

0.5

0.5

0.4

6.2

6.1

5.9

9.9

10.2

10.9

3.9%

4.0%

4.0%

High service & commodity distributors

Electrocomponents

1.4

1.3

1.2

11.9

9.6

8.7

17.6

14.1

12.7

2.6%

3.0%

3.2%

Average

1.9

1.6

1.5

11.9

9.8

9.1

17.5

15.0

14.0

2.7%

2.9%

3.0%

Versus peer group

(9%)

(8%)

(1%)

1%

Source: Thomson Eikon (at 18 December), Edison Investment Research

Exhibit 7: Peer group financial metrics

 

EBITDA margin

EBIT margin

Revenue growth

EPS growth

Last yr

This yr

Next yr

Last yr

This yr

Next yr

Last yr

This yr

Next yr

Last yr

This yr

Next yr

discoverIE

7.6%

8.2%

8.4%

6.5%

7.1%

7.3%

14.7%

10.5%

3.9%

15.8%

14.1%

4.7%

Design & manufacturing

Gooch & Housego

16.3%

19.2%

19.4%

15.3%

15.5%

14.5%

11.5%

14.1%

3.4%

16.5%

14.2%

5.2%

TT Electronics

9.7%

10.9%

11.4%

6.8%

7.8%

8.4%

8.2%

16.0%

10.9%

39.7%

31.2%

20.5%

XP Power

25.0%

24.9%

25.4%

21.8%

21.5%

21.9%

28.5%

19.3%

7.2%

27.5%

19.3%

10.8%

Specialist distributors

Diploma

18.5%

18.6%

18.7%

17.5%

17.1%

16.8%

7.3%

8.8%

4.0%

13.3%

9.6%

5.0%

Solid State

8.4%

8.0%

6.9%

6.5%

6.0%

5.6%

15.8%

7.6%

18.4%

(1.6%)

(2.8%)

(6.9%)

High service & commodity distributors

Electrocomponents

11.6%

13.1%

13.7%

10.4%

11.5%

12.1%

12.8%

9.8%

5.7%

35.2%

24.8%

11.0%

Average

14.9%

15.8%

15.9%

13.0%

13.2%

13.2%

14.0%

12.6%

8.3%

21.8%

16.1%

7.6%

Source: Thomson Eikon (at 18 December), Edison Investment Research


Exhibit 8: 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

428.5

445.4

Cost of Sales

(123.0)

(148.6)

(186.7)

(195.1)

(227.2)

(261.2)

(287.0)

(298.3)

Gross Profit

54.4

63.0

84.4

92.6

111.0

126.7

141.5

147.1

EBITDA

 

 

7.4

9.1

16.6

19.8

24.3

29.3

35.3

37.4

Operating Profit (before am, SBP and except.)

 

6.1

7.7

14.0

17.0

20.6

25.2

30.4

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)

(5.9)

(6.0)

Exceptionals

(3.4)

(0.9)

(5.2)

(2.1)

(8.4)

(1.1)

(4.8)

(3.2)

Share-based payments

(0.6)

(0.6)

(0.6)

(0.7)

(0.6)

(0.7)

(1.0)

(0.9)

Operating Profit

1.4

5.2

6.1

11.4

7.7

18.5

18.7

22.4

Net Interest

(0.5)

(0.8)

(1.6)

(1.8)

(2.8)

(2.6)

(4.0)

(4.6)

Profit Before Tax (norm)

 

 

5.6

6.9

12.4

15.2

17.8

22.6

26.4

28.0

Profit Before Tax (FRS 3)

 

 

0.7

4.2

4.3

9.4

4.8

15.8

14.5

17.6

Tax

1.4

(0.5)

(1.4)

(2.2)

(1.3)

(4.0)

(3.6)

(4.5)

Profit After Tax (norm)

4.6

6.0

10.0

11.8

13.6

17.1

19.8

20.8

Profit After Tax (FRS 3)

2.1

3.7

2.9

7.2

3.5

11.8

10.9

13.1

Average Number of Shares Outstanding (m)

39.2

43.1

57.6

63.3

65.4

70.8

72.9

73.4

EPS - normalised & diluted (p)

 

 

11.3

13.1

16.4

17.8

19.9

23.0

26.3

27.5

EPS - IFRS basic (p)

 

 

(4.8)

3.0

5.0

11.4

5.3

16.7

14.9

17.9

EPS - IFRS diluted (p)

 

 

(4.7)

2.8

4.8

10.9

5.1

15.8

14.4

17.3

Dividend per share (p)

6.2

6.8

7.6

8.1

8.5

9.0

9.5

10.0

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

7.3

BALANCE SHEET

Fixed Assets

 

 

30.9

33.1

88.6

108.4

122.2

136.0

148.3

141.9

Intangible Assets

24.2

25.5

69.9

88.2

100.7

106.8

119.8

113.7

Tangible Assets

3.1

3.5

13.8

14.7

16.0

23.4

22.7

22.4

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

168.4

182.3

193.1

Stocks

19.3

19.4

39.8

42.9

50.1

60.6

72.8

75.7

Debtors

44.7

48.3

60.2

65.5

77.3

84.6

91.6

97.6

Cash

17.8

18.1

26.7

19.9

21.0

21.9

16.6

18.6

Current Liabilities

 

 

(50.9)

(58.3)

(62.1)

(61.7)

(78.1)

(93.6)

(102.2)

(105.8)

Creditors

(46.6)

(51.5)

(61.9)

(60.9)

(77.1)

(87.2)

(95.8)

(99.4)

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)

(81.5)

(93.5)

(88.5)

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)

(13.6)

(10.6)

(10.6)

Net Assets

 

 

51.5

48.5

92.7

101.9

123.8

129.3

134.8

140.7

CASH FLOW

Operating Cash Flow

 

 

5.7

6.1

6.6

14.6

20.5

21.7

21.9

30.2

Net Interest

(0.6)

(0.8)

(1.6)

(1.8)

(2.8)

(2.6)

(4.0)

(4.6)

Tax

(1.4)

(0.9)

(3.3)

(4.3)

(3.0)

(3.7)

(5.6)

(7.1)

Capex

(1.3)

(1.4)

(2.5)

(2.3)

(3.4)

(4.3)

(4.0)

(4.5)

Acquisitions/disposals

(0.5)

(9.2)

(37.3)

(19.8)

(11.8)

(25.4)

(22.0)

0.0

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)

(7.1)

Net Cash Flow

5.3

(8.8)

11.0

(18.5)

7.9

(22.0)

(20.3)

7.0

Opening net cash/(debt)

 

 

6.3

11.8

1.8

(19.0)

(38.1)

(30.0)

(52.4)

(72.7)

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)

(72.7)

(65.7)

Source: discoverIE, Edison Investment Research

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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

General disclaimer and copyright

This report has been commissioned by discoverIE Group and prepared and issued by Edison, in consideration of a fee payable by discoverIE Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved 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.

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New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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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