discoverIE Group — Outlining the growth opportunity

discoverIE Group (LSE: DSCV)

Last close As at 20/06/2024

GBP6.87

−10.00 (−1.43%)

Market capitalisation

GBP662m

More on this equity

Research: TMT

discoverIE Group — Outlining the growth opportunity

At the recent Capital Markets Day, discoverIE management confirmed the company’s strategy to grow the business through a combination of organic growth, and acquisition of design and manufacturing businesses. The integration process is designed to retain the entrepreneurial spirit of acquired businesses while taking advantage of the group balance sheet and central functions, to drive good organic growth post acquisition. Management aims to provide investors with a progressive dividend and a return of 15-20% pa.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

discoverIE Group

Outlining the growth opportunity

Capital Markets Day

Electronic & electrical equipment

19 March 2018

Price

412p

Market cap

£294m

Net debt (£m) at end H118

37.6

Shares in issue

71.4m

Free float

96%

Code

DSCV

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.3

8.7

71.6

Rel (local)

0.8

12.7

74.1

52-week high/low

412p

217p

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

FY18 trading update

19 April 2018

FY18 results

June 2018

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

discoverIEdiscoverIE Group is a research client of Edison Investment Research Limited

At the recent Capital Markets Day, discoverIE management confirmed the company’s strategy to grow the business through a combination of organic growth, and acquisition of design and manufacturing businesses. The integration process is designed to retain the entrepreneurial spirit of acquired businesses while taking advantage of the group balance sheet and central functions, to drive good organic growth post acquisition. Management aims to provide investors with a progressive dividend and a return of 15-20% pa.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

287.7

15.2

17.8

8.1

23.1

2.0

03/17

338.2

17.8

19.9

8.5

20.1

2.1

03/18e

391.0

21.6

21.6

9.0

19.1

2.2

03/19e

427.6

25.0

24.6

9.5

16.4

2.3

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

Consolidating a fragmented market

After making 11 acquisitions in the design and manufacturing space over seven years, management continues to find multiple acquisition opportunities in the fragmented custom electronics market. Management has strict criteria for targets and a well-defined integration process to maximise growth and operating efficiency, and the acquired business should generate an EBIT return on investment of at least 15% within two years of being acquired. Cross-selling is a key tool to drive organic revenue growth, and divisional heads were keen to emphasise the attractiveness of being part of a larger group with access to a wider customer base. Sales incentives have been structured to encourage this.

Shifting the profile to higher-margin D&M business

Organic growth from existing businesses, combined with the acquisition of D&M businesses, is gradually shifting the proportion of D&M revenues as a percentage of the total: from 3% in FY11 to our 56% estimate for FY18 (and 59% including Santon on a pro forma basis). D&M operating margin, before central costs, was 11.5% in FY17, versus 3.2% for Custom Supply. This mix shift has grown the underlying group operating margin from 2.8% in FY11 to 6.2% in FY18e. With the target of moving the proportion up to 75% of revenues in the medium term and 85% in the longer term, this provides a pathway to push the operating margin above 10% for the group.

Valuation: Still trading at a discount

The stock is trading on an FY19e P/E of 16.4x, at a c 14% discount to the peer group average. Continued growth in the proportion of revenue generated from design and manufacturing should support operating margin expansion, and should help to reduce the valuation discount. The stock is also supported by a dividend yield of more than 2%.

Design and manufacturing: Lifting the lid

At the recent Capital Markets Day, analysts had the opportunity to meet management from each of the 12 D&M businesses and see a variety of products from across those businesses.

D&M product criteria

D&M group commercial director, Paul Neville, outlined the characteristics of the products that the D&M business seeks to supply:

Vital niche products in growing markets. Target growth markets include renewable energy, transportation, medical, and industrial connectivity.

Customised products priced on value rather than on a “cost-plus” basis.

Customers require local engineers and language.

Products demand high performance and reliability and are optimised for each application.

Product is a small proportion of overall equipment cost, but is essential to the end-device.

The businesses fit broadly into two categories:

1.

Magnetics & power: Flux, Myrra, Noratel, Plitron and RSG

2.

Components: Contour, Foss, Hectronic, MTC, Santon, Stortech and Variohm.

D&M growth path

The D&M division has grown from revenues of £6m in 2011 (all UK-based) to revenues of £176m in FY17, spread across the UK (14%), Europe (58%), North America (9%) and Asia/ROW (19%). This is from a combination of organic growth and 10 acquisitions (with one additional acquisition during FY18). Post-acquisition, on average businesses have shown organic revenue growth of 5% pa and organic EBIT growth of 7% pa.

Product demos highlight the benefits of being part of discoverIE

Meeting the business heads, it was apparent they appreciated being part of the larger discoverIE group, citing benefits such as the strong balance sheet (which gives comfort to customers), access to resources to help with international expansion, and importantly, the benefits of introductions to potential customers by other group companies (and vice versa). The range of products being demonstrated highlighted the large number of applications that discoverIE products go into. Some business heads commented on the ability of their businesses to supply small and medium sized volumes of customised products to customers, which differentiates them from volume manufacturers using cheaper Asian facilities, who are not interested in such small production runs. Others highlighted the reliability of their products, which has allowed them to retain customers for many years. Talking to the different heads, it became apparent that the wide geographical spread of manufacturing facilities serve various purposes:

the company can take advantage of lower labour costs – for example, magnetics produced at the Flux Thai facility;

meet domestic demand - the soon to be opened Bangalore facility services the domestic Indian market; or

meet regulatory requirements relating to the location of manufacturing - for example, US transport organisations buying technology for use in trains require at least 60% of the solution to be manufactured in the US. Noratel US is able to meet this requirement with its facility in California.

Approach to M&A

Jeremy Morcom, group head of Corporate Development, outlined the criteria used for selecting acquisition targets and the process undertaken to integrate businesses once acquired.

Well-defined criteria for acquisition targets

Active in target growth markets.

Already performing well – no problem companies that need fixing.

Products that fit into the D&M product criteria listed above and that the group already understands.

Strong value proposition, ie products require some element of customisation such that the product is not priced as a commodity.

OEM customer base.

Business has long-term growth potential.

Management is ambitious.

The business should be capable of generating an EBIT return on investment1 of at least 15% within two years of acquisition. Of the 10 acquisitions made up until the end of FY17, six companies have beaten that target and four have yet to hit it. On average, the return is 16%. The company expects the average to increase in FY18.

Calculated as annualized operating profit divided by initial consideration, acquisition costs, earnouts (if paid) and integration costs.

Future acquisitions could be bolt-ons that complement existing acquisitions or standalone deals. Target size (by enterprise value) is £10-80m, but a larger deal would be considered. Geographically, the company is keen to increase its presence in North America.

With net debt/EBITDA forecast at 1.7x at the end of FY18 and the company targeting gearing below 2x, it has some headroom to use debt. We expect that any larger deals would be part-equity funded.

Integration approach – retain entrepreneurial spirit

The company’s approach to integration begins even before a deal is closed. It will develop a three-year business plan with the target, which is agreed with the target pre-acquisition. Typically, deals are structured with an earnout element to align incentives.

The acquired company typically retains its brand and identity. As discoverIE is keen to retain an entrepreneurial spirit within the group, it acquires companies with ambitious management teams and allows them a certain amount of autonomy. The newly acquired business will have access to the larger resources of the discoverIE group. This includes purchasing efficiencies, manufacturing, finance and back office functions, and international sales and marketing resources. Cross-selling is encouraged – incentives are offered to both parties to a cross-selling transaction to encourage growth in this area. This usually takes a few years to become evident at the revenue level, as the design process for many products is in the region of one to three years.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2018e

2019e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

177.4

211.6

271.1

287.7

338.2

391.0

427.6

Cost of Sales

(123.0)

(148.6)

(186.7)

(195.1)

(227.2)

(264.9)

(289.1)

Gross Profit

54.4

63.0

84.4

92.6

111.0

126.1

138.6

EBITDA

 

 

7.4

9.1

16.6

19.8

24.3

29.0

34.4

Operating Profit (before am, SBP and except.)

6.1

7.7

14.0

17.0

20.6

24.8

29.2

Operating Profit (before am. and except.)

 

5.5

7.1

13.4

16.3

20.0

24.2

28.4

Amortisation of acquired intangibles

(0.7)

(1.0)

(2.1)

(2.8)

(3.9)

(4.9)

(7.4)

Exceptionals

(3.4)

(0.9)

(5.2)

(2.1)

(8.4)

(3.9)

(3.2)

Share-based payments

(0.6)

(0.6)

(0.6)

(0.7)

(0.6)

(0.6)

(0.8)

Operating Profit

1.4

5.2

6.1

11.4

7.7

15.4

17.7

Net Interest

(0.5)

(0.8)

(1.6)

(1.8)

(2.8)

(3.1)

(4.2)

Profit Before Tax (norm)

 

 

5.6

6.9

12.4

15.2

17.8

21.6

25.0

Profit Before Tax (FRS 3)

 

 

0.7

4.2

4.3

9.4

4.8

12.1

13.3

Tax

1.4

(0.5)

(1.4)

(2.2)

(1.3)

(3.5)

(3.5)

Profit After Tax (norm)

4.6

6.0

10.0

11.8

13.6

16.2

18.7

Profit After Tax (FRS 3)

2.1

3.7

2.9

7.2

3.5

8.6

9.9

Average Number of Shares Outstanding (m)

39.2

43.1

57.6

63.3

65.4

70.7

70.9

EPS - normalised & diluted (p)

 

 

11.3

13.1

16.4

17.8

19.9

21.6

24.6

EPS - IFRS basic (p)

 

 

(4.8)

3.0

5.0

11.4

5.3

12.1

13.9

EPS - IFRS diluted (p)

 

 

(4.7)

2.8

4.8

10.9

5.1

11.4

13.0

Dividend per share (p)

6.2

6.8

7.6

8.1

8.5

9.0

9.5

Gross Margin (%)

30.7

29.8

31.1

32.2

32.8

32.2

32.4

EBITDA Margin (%)

4.2

4.3

6.1

6.9

7.2

7.4

8.0

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

3.4

3.6

5.2

5.9

6.1

6.3

6.8

BALANCE SHEET

Fixed Assets

 

 

30.9

33.1

88.6

108.4

122.2

147.9

141.5

Intangible Assets

24.2

25.5

69.9

88.2

100.7

126.6

118.8

Tangible Assets

3.1

3.5

13.8

14.7

16.0

15.8

17.3

Deferred tax assets

3.6

4.1

4.9

5.5

5.5

5.5

5.5

Current Assets

 

 

81.8

92.7

127.3

128.3

149.6

164.6

170.7

Stocks

19.3

19.4

39.8

42.9

50.1

57.8

63.3

Debtors

44.7

48.3

60.2

65.5

77.3

86.8

94.9

Cash

17.8

18.1

26.7

19.9

22.2

20.0

12.6

Current Liabilities

 

 

(50.9)

(58.3)

(62.1)

(61.7)

(78.4)

(95.2)

(101.6)

Creditors

(46.6)

(51.5)

(61.9)

(60.9)

(77.1)

(89.9)

(96.3)

Short term borrowings

(4.3)

(6.8)

(0.2)

(0.8)

(1.3)

(5.3)

(5.3)

Long Term Liabilities

 

 

(10.3)

(19.0)

(61.1)

(73.1)

(69.6)

(93.3)

(86.5)

Long term borrowings

(1.7)

(9.5)

(45.5)

(57.2)

(50.9)

(70.9)

(65.9)

Other long term liabilities

(8.6)

(9.5)

(15.6)

(15.9)

(18.7)

(22.4)

(20.6)

Net Assets

 

 

51.5

48.5

92.7

101.9

123.8

124.1

124.2

CASH FLOW

Operating Cash Flow

 

 

5.7

6.1

6.6

14.6

20.3

19.2

27.1

Net Interest

(0.6)

(0.8)

(1.6)

(1.8)

(2.8)

(3.1)

(4.2)

Tax

(1.4)

(0.9)

(3.3)

(4.3)

(3.0)

(5.4)

(6.3)

Capex

(1.3)

(1.4)

(2.5)

(2.3)

(3.4)

(3.7)

(6.2)

Acquisitions/disposals

(0.5)

(9.2)

(37.3)

(19.8)

(11.8)

(27.0)

(6.4)

Financing

5.7

0.1

52.7

0.0

13.6

0.0

0.0

Dividends

(2.3)

(2.7)

(3.6)

(4.9)

(5.2)

(6.2)

(6.5)

Net Cash Flow

5.3

(8.8)

11.0

(18.5)

7.7

(26.2)

(2.4)

Opening net cash/(debt)

 

 

6.3

11.8

1.8

(19.0)

(38.1)

(30.0)

(56.2)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.2

(1.2)

(31.8)

(0.6)

0.4

0.0

0.0

Closing net cash/(debt)

 

 

11.8

1.8

(19.0)

(38.1)

(30.0)

(56.2)

(58.6)

Source: discoverIE, Edison Investment Research

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

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: TMT

EMIS Group — Strengthening the core

EMIS Group’s recent restructuring enabled it to report FY17 adjusted profits in line with forecasts, despite revenues below our expectations. The company’s immediate focus is on strengthening its core business, both in the wake of the recent customer support issue, but also to ensure it can maintain its market-leading position in the UK primary care market. Lower revenue growth and increased costs to support near-term projects reduce our earnings forecasts for FY18 and FY19. Management is working on detailed plans for growth, which it expects to share later this year.

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