Currency in GBP
Last close As at 02/06/2023
GBP7.90
▲ 2.00 (0.25%)
Market capitalisation
GBP759m
Research: TMT
discoverIE confirmed a return to organic revenue growth in the last two months of FY21 and 17% organic growth in orders over the same period, helped by robust performance in target markets, which make up more than 70% of revenue. With board expectations for underlying earnings now ahead of the consensus range, we have upgraded our forecasts reflecting higher revenue and lower interest expense, resulting in an upgrade to underlying EPS of 7.7% for FY21e and 3.3% EPS for FY22e.
discoverIE Group |
Strong finish to year prompts upgrades |
FY21 trading update |
Tech hardware & equipment |
21 April 2021 |
Share price performance
Business description
Next events
Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
discoverIE confirmed a return to organic revenue growth in the last two months of FY21 and 17% organic growth in orders over the same period, helped by robust performance in target markets, which make up more than 70% of revenue. With board expectations for underlying earnings now ahead of the consensus range, we have upgraded our forecasts reflecting higher revenue and lower interest expense, resulting in an upgrade to underlying EPS of 7.7% for FY21e and 3.3% EPS for FY22e.
Year end |
Revenue (£m) |
PBT* |
Dil. EPS* |
DPS |
P/E |
Yield |
03/19 |
438.9 |
28.4 |
28.4 |
9.6 |
27.4 |
1.2 |
03/20 |
466.4 |
34.6 |
31.8 |
3.0 |
24.5 |
0.4 |
03/21e |
453.6 |
31.5 |
25.6 |
10.4 |
30.4 |
1.3 |
03/22e |
489.0 |
33.4 |
27.2 |
10.7 |
28.7 |
1.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Return to organic revenue growth
discoverIE reported that order intake accelerated in the final two months of FY21, up 17% organically year-on-year (with double-digit growth in both divisions) compared to 10% y-o-y growth for the prior four months. Bookings for FY21 were 2% lower organically, with H221 bookings 40% higher than H121. H221 sales were 9% higher half-on-half and the last two months saw organic growth of 1% y-o-y resulting in an FY21 group sales decline of 3% y-o-y and 6% on an organic basis (-4% D&M, -8% CS). This resulted in FY21 underlying earnings ahead of the upper end of consensus (adjusted EPS range 22.4–24.2p). Continued strong cash generation reduced net debt/EBITDA at year-end to 1.2x, well below our 1.6x forecast and the company’s target range of 1.5–2.0x.
Upgrading estimates
We have revised our forecasts to reflect stronger performance in the final months of the year. We increase our revenue forecasts by 1.1% in FY21 and 0.5% in FY22 and reduced our net interest expense estimates (based on lower debt), resulting in underlying diluted EPS increasing by 7.7% in FY21 and 3.3% in FY22. We have also reflected lower working capital outflows, reducing our year-end net debt forecast from £66m to £54m.
Valuation: Discount to peers
The stock is trading at a c 11% discount to its peer group on an FY21e P/E basis, down from 13% when we last wrote, and a smaller 2% discount to peer average P/E in FY22e. Aside from the continuing recovery in customer demand, we view the key trigger for earnings and share price upside to be progress in increasing the weighting of the business towards the higher-growth, higher-margin D&M business (organically and via acquisition), which in turn should move the company closer to its 12.5% medium-term operating margin target. The stock is supported by a dividend yield close to 1.5%.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
271.1 |
287.7 |
338.2 |
387.9 |
438.9 |
466.4 |
453.6 |
489.0 |
Cost of Sales |
(186.7) |
(195.1) |
(227.2) |
(261.2) |
(293.9) |
(309.7) |
(300.8) |
(323.7) |
||
Gross Profit |
84.4 |
92.6 |
111.0 |
126.7 |
145.0 |
156.7 |
152.8 |
165.3 |
||
EBITDA |
|
|
16.6 |
19.8 |
24.3 |
29.3 |
37.0 |
50.9 |
47.9 |
50.3 |
Operating Profit (before am, SBP and except.) |
|
14.0 |
17.0 |
20.6 |
25.2 |
31.8 |
38.9 |
35.5 |
37.9 |
|
Operating Profit (before am. and except.) |
|
|
13.4 |
16.3 |
20.0 |
24.5 |
30.6 |
37.1 |
33.9 |
36.1 |
Amortisation of acquired intangibles |
(2.1) |
(2.8) |
(3.9) |
(4.9) |
(5.9) |
(9.0) |
(10.8) |
(11.0) |
||
Exceptionals |
(5.2) |
(2.1) |
(8.4) |
(2.3) |
(2.0) |
(4.3) |
(2.4) |
(3.6) |
||
Share-based payments |
(0.6) |
(0.7) |
(0.6) |
(0.7) |
(1.2) |
(1.8) |
(1.6) |
(1.8) |
||
Operating Profit |
6.1 |
11.4 |
7.7 |
17.3 |
22.7 |
23.8 |
20.7 |
21.5 |
||
Net Interest |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.4) |
(4.3) |
(4.0) |
(4.5) |
||
Profit Before Tax (norm) |
|
|
12.4 |
15.2 |
17.8 |
22.6 |
28.4 |
34.6 |
31.5 |
33.4 |
Profit Before Tax (FRS 3) |
|
|
4.3 |
9.4 |
4.8 |
14.6 |
19.3 |
19.5 |
16.6 |
16.9 |
Tax |
(1.4) |
(2.2) |
(1.3) |
(4.0) |
(4.7) |
(5.2) |
(4.2) |
(4.2) |
||
Profit After Tax (norm) |
10.0 |
11.8 |
13.6 |
17.1 |
21.5 |
27.6 |
23.6 |
25.1 |
||
Profit After Tax (FRS 3) |
2.9 |
7.2 |
3.5 |
10.6 |
14.6 |
14.3 |
12.5 |
12.7 |
||
Ave. Number of Shares Outstanding (m) |
57.6 |
63.3 |
65.4 |
70.8 |
73.0 |
84.0 |
89.1 |
89.5 |
||
EPS - normalised & diluted (p) |
|
|
16.4 |
17.8 |
19.9 |
23.0 |
28.4 |
31.8 |
25.6 |
27.2 |
EPS - underlying, diluted (p) |
|
|
15.4 |
17.0 |
19.2 |
22.3 |
27.2 |
30.2 |
24.3 |
25.7 |
EPS - IFRS basic (p) |
|
|
5.0 |
11.4 |
5.3 |
15.0 |
20.0 |
17.0 |
14.0 |
14.2 |
EPS - IFRS diluted (p) |
|
|
4.8 |
10.9 |
5.1 |
14.2 |
19.4 |
16.5 |
13.5 |
13.8 |
Dividend per share (p) |
7.6 |
8.1 |
8.5 |
9.0 |
9.6 |
3.0 |
10.4 |
10.7 |
||
Gross Margin (%) |
31.1 |
32.2 |
32.8 |
32.7 |
33.0 |
33.6 |
33.7 |
33.8 |
||
EBITDA Margin (%) |
6.1 |
6.9 |
7.2 |
7.6 |
8.4 |
10.9 |
10.6 |
10.3 |
||
Operating Margin (before am, SBP and except.) (%) |
5.2 |
5.9 |
6.1 |
6.5 |
7.2 |
8.3 |
7.8 |
7.7 |
||
discoverIE adjusted operating margin (%) |
4.9 |
5.7 |
5.9 |
6.3 |
7.0 |
8.0 |
7.5 |
7.4 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
88.6 |
108.4 |
122.2 |
136.4 |
149.2 |
236.4 |
238.9 |
223.0 |
Intangible Assets |
69.9 |
88.2 |
100.7 |
107.2 |
119.7 |
182.2 |
192.8 |
181.7 |
||
Tangible Assets |
13.8 |
14.7 |
16.0 |
23.4 |
24.4 |
46.3 |
38.2 |
33.4 |
||
Deferred tax assets |
4.9 |
5.5 |
5.5 |
5.8 |
5.1 |
7.9 |
7.9 |
7.9 |
||
Current Assets |
|
|
127.3 |
128.3 |
147.1 |
165.9 |
179.1 |
197.4 |
195.6 |
203.9 |
Stocks |
39.8 |
42.9 |
48.8 |
58.1 |
66.2 |
68.4 |
67.1 |
73.4 |
||
Debtors |
60.2 |
65.5 |
77.3 |
84.6 |
88.7 |
90.1 |
87.0 |
95.1 |
||
Cash |
26.7 |
19.9 |
21.0 |
21.9 |
22.9 |
36.8 |
39.4 |
33.2 |
||
Current Liabilities |
|
|
(62.1) |
(61.7) |
(78.1) |
(94.0) |
(96.0) |
(103.6) |
(110.8) |
(116.9) |
Creditors |
(61.9) |
(60.9) |
(77.1) |
(87.6) |
(94.3) |
(94.0) |
(101.2) |
(107.3) |
||
Lease liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(5.3) |
(5.3) |
(5.3) |
||
Short term borrowings |
(0.2) |
(0.8) |
(1.0) |
(6.4) |
(1.7) |
(4.3) |
(4.3) |
(4.3) |
||
Long Term Liabilities |
|
|
(61.1) |
(73.1) |
(68.7) |
(81.5) |
(97.6) |
(129.7) |
(114.4) |
(95.7) |
Long term borrowings |
(45.5) |
(57.2) |
(50.0) |
(67.9) |
(84.5) |
(93.8) |
(88.8) |
(83.8) |
||
Lease liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
(14.7) |
(8.1) |
(1.5) |
||
Other long term liabilities |
(15.6) |
(15.9) |
(18.7) |
(13.6) |
(13.1) |
(21.2) |
(17.5) |
(10.4) |
||
Net Assets |
|
|
92.7 |
101.9 |
122.5 |
126.8 |
134.7 |
200.5 |
209.3 |
214.2 |
CASH FLOW |
||||||||||
Operating Cash Flow |
|
|
6.6 |
14.6 |
20.5 |
21.7 |
30.0 |
48.0 |
57.6 |
40.0 |
Net Interest |
(1.6) |
(1.8) |
(2.8) |
(2.6) |
(3.4) |
(3.7) |
(4.0) |
(4.5) |
||
Tax |
(3.3) |
(4.3) |
(3.0) |
(3.7) |
(3.8) |
(6.4) |
(7.9) |
(8.3) |
||
Capex |
(2.5) |
(2.3) |
(3.4) |
(4.3) |
(5.4) |
(6.3) |
(4.0) |
(7.5) |
||
Acquisitions/disposals |
(37.3) |
(19.8) |
(11.8) |
(25.4) |
(22.4) |
(73.6) |
(24.7) |
(5.0) |
||
Financing |
52.7 |
0.0 |
13.6 |
(1.5) |
0.1 |
53.9 |
(6.6) |
(6.6) |
||
Dividends |
(3.6) |
(4.9) |
(5.2) |
(6.2) |
(6.7) |
(8.1) |
(2.8) |
(9.3) |
||
Net Cash Flow |
11.0 |
(18.5) |
7.9 |
(22.0) |
(11.6) |
3.8 |
7.6 |
(1.2) |
||
Opening net cash/(debt) |
|
|
1.8 |
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(63.3) |
(61.3) |
(53.7) |
HP finance leases initiated |
0.0 |
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 |
(1.8) |
(0.0) |
(0.0) |
||
Closing net cash/(debt) |
|
|
(19.0) |
(38.1) |
(30.0) |
(52.4) |
(63.3) |
(61.3) |
(53.7) |
(54.9) |
Source: discoverIE, Edison Investment Research
|
|
Research: Industrials
Carr’s Group has reported a 5% rise in adjusted operating profit during H121. Strong performances from both the Speciality Agriculture and Agricultural Supplies divisions more than compensated for weaker demand from the oil and gas market, which adversely affected the Engineering division. However, the Engineering order book is strengthening with contracts from the nuclear and defence markets, so management expects a second half divisional recovery and its expectations for FY21 performance are unchanged.
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