Currency in GBP
Last close As at 26/05/2023
GBP7.84
▲ 1.00 (0.13%)
Market capitalisation
GBP755m
Research: TMT
discoverIE has reported a strong Q3 trading update, with group organic revenue growth of 10% year-on-year, up from the 7% reported in H119. Demand was strong across both divisions and recent acquisitions are making good progress. With trading in line with management expectations, we make no change to forecasts, but highlight that if growth remains as strong in Q4, we see potential for earnings upgrades.
discoverIE Group |
Organic growth accelerates |
Q3 trading update |
Electronic & electrical equipment |
1 February 2019 |
Share price performance
Business description
Next events
Analysts
discoverIE Group is a research client of Edison Investment Research Limited |
discoverIE has reported a strong Q3 trading update, with group organic revenue growth of 10% year-on-year, up from the 7% reported in H119. Demand was strong across both divisions and recent acquisitions are making good progress. With trading in line with management expectations, we make no change to forecasts, but highlight that if growth remains as strong in Q4, we see potential for earnings upgrades.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/17 |
338.2 |
17.8 |
19.9 |
8.5 |
21.1 |
2.0 |
03/18 |
387.9 |
22.6 |
23.0 |
9.0 |
18.2 |
2.1 |
03/19e |
428.5 |
26.4 |
26.3 |
9.5 |
16.0 |
2.3 |
03/20e |
445.4 |
28.0 |
27.5 |
10.0 |
15.2 |
2.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q3 organic growth accelerates for both divisions
discoverIE saw strong trading through Q319, with revenues up 18% y-o-y, up 20% at constant exchange rates (CER) and up 10% on an organic basis. Organic growth accelerated in both Design & Manufacturing (D&M), where Q3 revenues were up 11% compared to 10% in Q1 and Q2, and Custom Supply (CS), which saw Q3 growth of 9% up from 1% in Q1 and 4% in Q2. Good demand was spread across verticals and geographies, with Germany and Asia showing particular strength. Cursor Controls (acquired in October 2018) is seeing strong growth in orders and sales compared to the same period pre-acquisition. As flagged in December, Santon has seen a return to normal ordering patterns after a weaker H1. Revenues from cross-selling of £3m were 26% higher y-o-y, and put the company well on track to beat its £10m target for the year. Gross margin was in line with the 33% reported in H119.
Orders +7%, book-to-bill 1.08x for Q3
Group orders increased 7% y-o-y on an organic basis, resulting in a book-to-bill of 1.08x for the quarter. The order book at the end of Q3 was £145m, +21% CER and +12% organic, with c 80% due for delivery in the next 12 months. Management confirmed that the company is on track to deliver full year earnings in line with its expectations. The company has seen no obvious impact from Brexit uncertainty but, as previously noted, has increased inventory to cope with any potential disruption. At this point we make no changes to estimates, but note that if organic growth remains as strong in Q4, there is potential upside to our forecasts.
Valuation: Strong trading supports upside
For FY19e, the stock is trading on an EV/EBITDA of 9.6x (at an 11% discount to its peer group) and at a 2% discount 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%.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
177.4 |
211.6 |
271.1 |
287.7 |
338.2 |
387.9 |
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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