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Currency in GBP
Last close As at 26/05/2023
GBP7.84
▲ 1.00 (0.13%)
Market capitalisation
GBP755m
Research: TMT
discoverIE saw continued strong trading in Q418 and expects to report revenue growth of 15% for FY18 and earnings in line with management expectations. Design & Manufacturing (D&M) delivered further strong organic growth in the final quarter, and the group has a strong order book entering FY19, bolstered by the recent Stanton acquisition. The company is making good progress in its strategy to build the D&M side of the business and we continue to expect further acquisitions in this space.
discoverIE Group |
Strong finish to FY18 |
FY18 trading update |
Electronic & electrical equipment |
24 April 2018 |
Share price performance
Business description
Next events
Analysts
discoverIE Group is a research client of Edison Investment Research Limited |
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discoverIE saw continued strong trading in Q418 and expects to report revenue growth of 15% for FY18 and earnings in line with management expectations. Design & Manufacturing (D&M) delivered further strong organic growth in the final quarter, and the group has a strong order book entering FY19, bolstered by the recent Stanton acquisition. The company is making good progress in its strategy to build the D&M side of the business and we continue to expect further acquisitions in this space.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/16 |
287.7 |
15.2 |
17.8 |
8.1 |
23.6 |
1.9 |
03/17 |
338.2 |
17.8 |
19.9 |
8.5 |
21.1 |
2.0 |
03/18e |
391.0 |
21.6 |
21.6 |
9.0 |
19.4 |
2.1 |
03/19e |
427.6 |
25.0 |
24.6 |
9.5 |
17.1 |
2.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY18 – 6% organic growth
discoverIE expects to report FY18 revenue growth of 15% (our forecast 15.6%) and earnings in line with management expectations. Group revenues grew 11% at constant exchange rates (CER) and 6% on an organic basis. The group generated £9m revenues from cross-selling, close to double the level achieved in FY17. Order intake increased 5% on an organic basis, resulting in an order book of £122m at the year end (+12% y-o-y CER). Group gross margin increased half-on-half in H218. We make no changes to our forecasts pending preliminary results on 5 June.
Growth from D&M
In FY18, the D&M division saw organic revenue growth of 11% y-o-y, with order intake up 10%, resulting in the year-end order book 12% higher y-o-y on an organic basis. Santon Group, acquired in February, is settling in well and in addition to seeing strength in its core solar business, is generating new opportunities in the transportation and industrial sectors. The Custom Supply business saw flat organic revenues in FY18, partly due to a very strong Q417 creating a tough comparison. Strength in Germany and Italy was offset by weaker domestic demand in the UK. Post restructuring, the business is more efficient and delivering better profitability.
Valuation: Reducing the discount
The stock is trading on an FY19e P/E of 17.1x, at a c 10% 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%.
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
|
|
Research: Industrials
FY17 was a difficult trading year for Epwin – and some effects flow into this financial year – but management has stuck resolutely to a business improvement programme from which the benefits should also be progressively felt. Slightly lower estimates and a reduced prospective near-term dividend payout are our interpretation of the latest newsflow. As before, Epwin does have the financial flexibility to enhance earnings prospects via acquisitions, which may refocus investor attention back on to low current earnings multiples.
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