Currency in GBP
Last close As at 09/06/2023
GBP9.15
▲ 2.00 (0.22%)
Market capitalisation
GBP882m
In H123, discoverIE reported strong organic growth in revenue and orders, with a book-to-bill of 1.07x and a record order book at the end of H1. Gross margins have been resilient, despite various supply chain challenges, and the company is adding new production capacity in India. The company is on track to deliver underlying earnings in line with board expectations for FY23; we maintain our forecasts.
discoverIE Group |
Robust H123 order intake drives record orderbook |
H123 trading update |
Tech hardware and equipment |
14 October 2022 |
Share price performance
Business description
Next events
Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
In H123, discoverIE reported strong organic growth in revenue and orders, with a book-to-bill of 1.07x and a record order book at the end of H1. Gross margins have been resilient, despite various supply chain challenges, and the company is adding new production capacity in India. The company is on track to deliver underlying earnings in line with board expectations for FY23; we maintain our forecasts.
Year end |
Revenue |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/21 |
302.8 |
27.2 |
22.4 |
10.15 |
30.1 |
1.5% |
03/22 |
379.2 |
37.6 |
29.4 |
10.80 |
22.9 |
1.6% |
03/23e |
414.6 |
41.7 |
31.6 |
11.15 |
21.3 |
1.7% |
03/24e |
425.3 |
43.1 |
32.6 |
11.50 |
20.7 |
1.7% |
Note: *PBT and EPS as per discoverIE’s underlying metric, excluding amortisation of acquired intangibles and exceptional items.
Strong organic growth in H123
discoverIE reported revenue growth of 26% y-o-y for H123, or 23% at constant exchange rates (CER) and 14% organic CER. On an organic basis, Magnetics & Controls saw 17% y-o-y growth and Sensing & Connectivity 11% growth. Order intake was stronger than management expected, with a book-to-bill of 1.07x and a record order book of £257m at the end of H123, up 15% h-o-h and organically up 21% y-o-y. The company expects the order book level to normalise as it converts to sales in H223. Gross margins remained resilient and the semiconductor supply issues in two of the group’s 21 businesses are starting to improve.
Building sustainable capacity
To support customers as they look to build more diversity into their supply chains, discoverIE has started work on a new larger production facility in Kerala, India, which will supersede the existing plant there next year. Despite the ongoing turmoil in the country, the Sri Lankan facility (c 6% of group sales) continued to produce at expected levels through H123, and the company is providing support to local employees. As part of the company’s target to reduce carbon emissions by 50% by 2025, renewable energy sources are being installed at various production facilities.
Valuation: Well-positioned for profitable growth
While the stock is trading at a small 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 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 1: 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 |
414.6 |
425.3 |
EBITDA |
|
|
43.6 |
44.0 |
56.1 |
61.3 |
62.7 |
Normalised operating Profit (before am, SBP and except.) |
31.6 |
31.9 |
44.8 |
48.7 |
49.9 |
||
Underlying operating Profit (before am. and except.) |
29.8 |
30.8 |
41.4 |
46.3 |
47.5 |
||
Amortisation of acquired intangibles |
(9.0) |
(11.1) |
(14.0) |
(16.5) |
(16.5) |
||
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 |
26.8 |
28.0 |
||
Net Interest |
(4.3) |
(3.6) |
(3.8) |
(4.6) |
(4.4) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
41.0 |
44.1 |
45.5 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
17.1 |
22.2 |
23.6 |
Tax |
(3.3) |
(4.0) |
(7.4) |
(5.6) |
(6.0) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
30.8 |
32.9 |
34.0 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
9.7 |
16.5 |
17.6 |
||
Discontinued operations |
5.4 |
2.5 |
15.5 |
0.0 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
30.8 |
32.9 |
34.0 |
||
Net income (FRS 3) |
14.3 |
12.0 |
25.2 |
16.5 |
17.6 |
||
Ave. Number of Shares Outstanding (m) |
84.0 |
88.8 |
93.0 |
95.7 |
96.2 |
||
EPS - normalised & diluted (p) |
|
|
25.1 |
23.4 |
32.1 |
33.5 |
34.4 |
EPS - underlying, diluted (p) |
|
|
24.4 |
22.4 |
29.4 |
31.6 |
32.6 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
27.1 |
17.3 |
18.3 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
26.3 |
16.8 |
17.8 |
Dividend per share (p) |
2.97 |
10.15 |
10.80 |
11.15 |
11.50 |
||
EBITDA Margin (%) |
14.6 |
14.5 |
14.8 |
14.8 |
14.7 |
||
Normalised operating margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.8 |
11.7 |
11.7 |
||
discoverIE underlying operating margin (%) |
10.0 |
10.2 |
10.9 |
11.2 |
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 |
205.0 |
216.2 |
Stocks |
68.4 |
67.7 |
77.8 |
88.6 |
90.9 |
||
Debtors |
90.1 |
84.9 |
78.0 |
88.6 |
90.9 |
||
Cash |
36.8 |
29.2 |
39.4 |
26.2 |
32.8 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(120.9) |
(130.9) |
(133.8) |
Creditors |
(94.0) |
(102.2) |
(114.2) |
(124.2) |
(127.1) |
||
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) |
(100.7) |
(89.5) |
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) |
(22.4) |
(16.9) |
||
Net Assets |
|
|
200.5 |
208.4 |
290.4 |
297.4 |
304.9 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
42.5 |
44.8 |
56.0 |
Net Interest |
(3.7) |
(3.1) |
(3.3) |
(4.1) |
(3.9) |
||
Tax |
(6.4) |
(7.2) |
(7.1) |
(11.2) |
(11.6) |
||
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) |
(10.4) |
(10.9) |
||
Net Cash Flow |
3.8 |
12.7 |
15.8 |
(8.1) |
11.6 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(30.2) |
(38.4) |
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) |
(38.4) |
(26.8) |
Source: discoverIE, Edison Investment Research
|
|
YouGov’s FY22 results (July year-end) show 20% underlying revenue growth, boosted to 31% by currency. Progress was good in all three segments, with a particularly encouraging performance in Custom Research, which is increasingly about connected data rather than one-off projects. FY23 is the last year of YouGov’s FYP3 strategic plan, with some elements of the ambitious built-in targets easier to achieve than others. A new FY24–26 plan is being drawn up, overseen by CEO Stephan Shakespeare, who transitions to the role of chair at end FY23. The share price performance has been affected by the market rotation out of high growth tech stocks.
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