Currency in GBP
Last close As at 26/05/2023
GBP7.84
▲ 1.00 (0.13%)
Market capitalisation
GBP755m
Research: TMT
discoverIE saw continued good trading momentum in Q320, with group revenue growth of 3% y-o-y (9M20 +7% y-o-y). Strong organic growth in the Design & Manufacturing (D&M) business, particularly in its target markets, was offset by temporary destocking issues in Custom Supply (CS). CS orders have rebounded in January and the company maintains its earnings expectations for FY20; we maintain our forecasts.
discoverIE Group |
On track for FY20 |
Trading update |
Electronic & electrical equipment |
31 January 2020 |
Share price performance
Business description
Next events
Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
discoverIE saw continued good trading momentum in Q320, with group revenue growth of 3% y-o-y (9M20 +7% y-o-y). Strong organic growth in the Design & Manufacturing (D&M) business, particularly in its target markets, was offset by temporary destocking issues in Custom Supply (CS). CS orders have rebounded in January and the company maintains its earnings expectations for FY20; we maintain our forecasts.
Year end |
Revenue (£m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/18 |
387.9 |
22.6 |
23.0 |
9.0 |
25.0 |
1.6 |
03/19 |
438.9 |
28.4 |
28.4 |
9.6 |
20.2 |
1.7 |
03/20e |
475.4 |
33.7 |
29.4 |
10.0 |
19.6 |
1.7 |
03/21e |
498.5 |
37.6 |
31.1 |
10.4 |
18.5 |
1.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Trading in line with expectations
The company noted that good trading momentum continued through Q320 and it is on track to deliver FY20 earnings in line with expectations. D&M saw 16% y-o-y growth at constant exchange rates (CER) and 7% on an organic basis, in line with performance in H120. This was driven by sales in its four target markets, particularly renewables and medical. CS saw the effect of some short-term customer destocking, particularly in the UK and Germany, with revenues down 10% yoy on an organic basis (although book-to-bill was 1.06x). Group revenues grew 6% y-o-y CER, 3% reported and flat organically, with book-to-bill above 1x. 9M20 revenues were +8% CER, +7% reported and +3% organic (D&M +7% organic). Group gross margin was 1pp higher than a year ago, with operating expenses and working capital tightly managed.
Order book +5% CER year-on-year
The order book at the end of Q320 (of which 80% is due for delivery over the next 12 months) was 5% higher year-on-year at constant exchange rates. The D&M order book was 12% higher CER, while the CS order book declined 7% CER. In January, CS orders returned to the higher levels achieved in H120. We make no changes to our forecasts. The company noted that Sens-Tech (acquired in October 2019) is performing well and in line with expectations, and referred to a pipeline of further acquisition opportunities.
Valuation: D&M focus supports upside
Compared to the peer group average, the stock is trading at a 10% discount on an EV/EBIT basis and an 8% discount on a P/E basis. Further progress in increasing the weighting of business towards the higher-growth and higher-margin D&M business, combined with maintaining the profitability of the Custom Supply business, should help to reduce the discount.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
271.1 |
287.7 |
338.2 |
387.9 |
438.9 |
475.4 |
498.5 |
Cost of Sales |
(186.7) |
(195.1) |
(227.2) |
(261.2) |
(293.9) |
(317.0) |
(332.5) |
||
Gross Profit |
84.4 |
92.6 |
111.0 |
126.7 |
145.0 |
158.5 |
166.0 |
||
EBITDA |
|
|
16.6 |
19.8 |
24.3 |
29.3 |
37.0 |
50.4 |
54.4 |
Operating Profit (before am, SBP and except.) |
|
14.0 |
17.0 |
20.6 |
25.2 |
31.8 |
38.4 |
42.6 |
|
Operating Profit (before am. and except.) |
|
13.4 |
16.3 |
20.0 |
24.5 |
30.6 |
37.2 |
41.4 |
|
Amortisation of acquired intangibles |
(2.1) |
(2.8) |
(3.9) |
(4.9) |
(5.9) |
(7.6) |
(8.0) |
||
Exceptionals |
(5.2) |
(2.1) |
(8.4) |
(2.3) |
(2.0) |
(3.1) |
(3.2) |
||
Share-based payments |
(0.6) |
(0.7) |
(0.6) |
(0.7) |
(1.2) |
(1.2) |
(1.2) |
||
Operating Profit |
6.1 |
11.4 |
7.7 |
17.3 |
22.7 |
26.5 |
30.2 |
||
Net Interest |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.4) |
(4.7) |
(5.1) |
||
Profit Before Tax (norm) |
|
|
12.4 |
15.2 |
17.8 |
22.6 |
28.4 |
33.7 |
37.6 |
Profit Before Tax (FRS 3) |
|
|
4.3 |
9.4 |
4.8 |
14.6 |
19.3 |
21.7 |
25.0 |
Tax |
(1.4) |
(2.2) |
(1.3) |
(4.0) |
(4.7) |
(5.4) |
(6.1) |
||
Profit After Tax (norm) |
10.0 |
11.8 |
13.6 |
17.1 |
21.5 |
25.4 |
28.3 |
||
Profit After Tax (FRS 3) |
2.9 |
7.2 |
3.5 |
10.6 |
14.6 |
16.3 |
18.9 |
||
Average Number of Shares Outstanding (m) |
57.6 |
63.3 |
65.4 |
70.8 |
73.0 |
83.9 |
88.7 |
||
EPS - normalised & diluted (p) |
|
|
16.4 |
17.8 |
19.9 |
23.0 |
28.4 |
29.4 |
31.1 |
EPS - IFRS basic (p) |
|
|
5.0 |
11.4 |
5.3 |
15.0 |
20.0 |
19.5 |
21.3 |
EPS - IFRS diluted (p) |
|
|
4.8 |
10.9 |
5.1 |
14.2 |
19.4 |
18.9 |
20.7 |
Dividend per share (p) |
7.6 |
8.1 |
8.5 |
9.0 |
9.6 |
10.0 |
10.4 |
||
Gross Margin (%) |
31.1 |
32.2 |
32.8 |
32.7 |
33.0 |
33.3 |
33.3 |
||
EBITDA Margin (%) |
6.1 |
6.9 |
7.2 |
7.6 |
8.4 |
10.6 |
10.9 |
||
Operating Margin (before am, SBP and except.) (%) |
5.2 |
5.9 |
6.1 |
6.5 |
7.2 |
8.1 |
8.6 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
88.6 |
108.4 |
122.2 |
136.4 |
149.2 |
232.9 |
219.6 |
Intangible Assets |
69.9 |
88.2 |
100.7 |
107.2 |
119.7 |
187.6 |
179.5 |
||
Tangible Assets |
13.8 |
14.7 |
16.0 |
23.4 |
24.4 |
40.2 |
35.0 |
||
Deferred tax assets |
4.9 |
5.5 |
5.5 |
5.8 |
5.1 |
5.1 |
5.1 |
||
Current Assets |
|
|
127.3 |
128.3 |
147.1 |
165.9 |
179.1 |
181.2 |
192.7 |
Stocks |
39.8 |
42.9 |
48.8 |
58.1 |
66.2 |
71.6 |
75.1 |
||
Debtors |
60.2 |
65.5 |
77.3 |
84.6 |
88.7 |
104.2 |
109.3 |
||
Cash |
26.7 |
19.9 |
21.0 |
21.9 |
22.9 |
4.1 |
7.1 |
||
Current Liabilities |
|
|
(62.1) |
(61.7) |
(78.1) |
(94.0) |
(96.0) |
(110.1) |
(113.6) |
Creditors |
(61.9) |
(60.9) |
(77.1) |
(87.6) |
(94.3) |
(101.7) |
(105.2) |
||
Lease liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(6.7) |
(6.7) |
||
Short term borrowings |
(0.2) |
(0.8) |
(1.0) |
(6.4) |
(1.7) |
(1.7) |
(1.7) |
||
Long Term Liabilities |
|
|
(61.1) |
(73.1) |
(68.7) |
(81.5) |
(97.6) |
(100.2) |
(85.4) |
Long term borrowings |
(45.5) |
(57.2) |
(50.0) |
(67.9) |
(84.5) |
(79.5) |
(74.5) |
||
Lease liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(7.9) |
(1.2) |
||
Other long term liabilities |
(15.6) |
(15.9) |
(18.7) |
(13.6) |
(13.1) |
(12.8) |
(9.7) |
||
Net Assets |
|
|
92.7 |
101.9 |
122.5 |
126.8 |
134.7 |
203.9 |
213.4 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
6.6 |
14.6 |
20.5 |
21.7 |
30.0 |
35.0 |
47.5 |
Net Interest |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.4) |
(4.7) |
(5.1) |
||
Tax |
(3.3) |
(4.3) |
(3.0) |
(3.7) |
(3.8) |
(8.3) |
(9.2) |
||
Capex |
(2.5) |
(2.3) |
(3.4) |
(4.3) |
(5.4) |
(6.4) |
(6.5) |
||
Acquisitions/disposals |
(37.3) |
(19.8) |
(11.8) |
(25.4) |
(22.4) |
(74.7) |
(3.0) |
||
Financing |
52.7 |
0.0 |
13.6 |
(1.5) |
0.1 |
53.9 |
(6.7) |
||
Dividends |
(3.6) |
(4.9) |
(5.2) |
(6.2) |
(6.7) |
(8.6) |
(9.0) |
||
Net Cash Flow |
11.0 |
(18.5) |
7.9 |
(22.0) |
(11.6) |
(13.8) |
8.0 |
||
Opening net cash/(debt) |
|
|
1.8 |
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(63.3) |
(77.1) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(31.8) |
(0.6) |
0.2 |
(0.4) |
0.7 |
0.0 |
0.0 |
||
Closing net cash/(debt) |
|
|
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(63.3) |
(77.1) |
(69.1) |
Source: discoverIE Group accounts, Edison Investment Research
|
|
Research: Healthcare
2019 has been a landmark year and we expect momentum to accelerate as Hutchison China MediTech (HCM) continues on its path to become a global biotech with a marketed portfolio of innovation-led oncology drugs. Achievements in 2019 include the addition of Elunate on China’s exclusive NRDL list and surufatinib’s China NDA submission following impressive data in NET. 2020–21 are pivotal years. Surufatinib should become the second asset to launch in China, partner AZN could launch savolitinib in China for NSCLC (MET Exon 14) in 2021 and, importantly, this drug could be the first of HCM’s innovation assets to launch globally in 2022 (for c-Met positive NSCLC in combination with Tagrisso, a blockbuster opportunity). We think recent underperformance is unjustified given the emerging strength of its broad, late-stage innovation pipeline and the opportunity for long-term growth and enhanced economic returns.
Get access to the very latest content matched to your personal investment style.