discoverIE Group — Strong growth despite market challenges

discoverIE Group (LSE: DSCV)

Currency in GBP

Last close As at 30/01/2023

GBP8.50

23.00 (2.78%)

Market capitalisation

GBP763m

Research: TMT

discoverIE Group — Strong growth despite market challenges

discoverIE has seen a strong bounce-back in trading after the worst of the COVID pandemic, with organic revenue growth of 18% y-o-y in FY22 and 14% versus FY20 (pre-COVID). The combination of organic growth and recent high-margin acquisitions generated underlying operating profit growth of 34% y-o-y with a margin approaching 11%. Organic order growth of 36% y-o-y has provided a strong order book entering FY23. With FY22 underlying EPS beating our forecasts, we upgrade FY23 and introduce FY24 estimates. We expect further M&A as discoverIE continues with its strategy to consolidate the fragmented electronics market.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

discoverIE Group

Strong growth despite market challenges

FY22 results

Tech hardware and equipment

17 June 2022

Price

685p

Market cap

£654m

€1.17:$1.22:£1

Net debt (£m) at end FY22

30.2

Shares in issue

95.5m

Free float

96%

Code

DSCV

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.8)

(16.5)

(22.3)

Rel (local)

(1.2)

(12.5)

(18.3)

52-week high/low

1,262p

677p

Business description

discoverIE is a leading international designer and manufacturer of customised electronics to industry, supplying customer-specific electronic products and solutions to original equipment manufacturers.

Next events

Q122 trading update

July

Analyst

Katherine Thompson

+44 (0)20 3077 5730

discoverIEdiscoverIE Group Group is a research client of Edison Investment Research Limited

discoverIE has seen a strong bounce-back in trading after the worst of the COVID pandemic, with organic revenue growth of 18% y-o-y in FY22 and 14% versus FY20 (pre-COVID). The combination of organic growth and recent high-margin acquisitions generated underlying operating profit growth of 34% y-o-y with a margin approaching 11%. Organic order growth of 36% y-o-y has provided a strong order book entering FY23. With FY22 underlying EPS beating our forecasts, we upgrade FY23 and introduce FY24 estimates. We expect further M&A as discoverIE continues with its strategy to consolidate the fragmented electronics market.

Year end

Revenue
(£m)

PBT*
(£m)

Dil. EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/21

302.8

27.2

22.4

10.15

30.5

1.5

03/22

379.2

37.6

29.4

10.80

23.3

1.6

03/23e

400.4

39.7

30.1

11.20

22.7

1.6

03/24e

412.4

41.3

31.2

11.50

21.9

1.7

Note: *PBT and EPS as per discoverIE’s underlying metric, excluding amortisation of acquired intangibles and exceptional items.

FY22: Strong recovery

discoverIE reported 25% revenue growth for FY22 (18% on an organic, constant exchange rate (CER) basis), underlying operating profit growth of 34% and an underlying profit margin of 10.9% (+0.7pp y-o-y). Underlying EPS of 29.4p was 31% higher year-on-year, 20% higher versus FY20 and was 5.2% ahead of our forecast. Tight working capital control resulted in year-end net debt of £30.2m, well below our £37.9m forecast, bringing gearing down to an eight-year low of 0.6x. We upgrade our FY23 underlying EPS forecast by 4.8% and introduce FY24 estimates.

Outlook: FY23 underpinned by order book

Organic order growth of 36% y-o-y (+32% versus FY20) resulted in a book-to-bill ratio of 1.19:1 in FY22 and a year-end order book worth £224m (c 6.5 months forward visibility). Management has navigated COVID disruption and supply chain issues well over the past two years and views the current inflationary and supply chain pressures as manageable. Strong organic sales growth continues year-to-date and we believe the focus on strategic growth markets should help the company to meet its target of exceeding GDP growth, even during periods of economic uncertainty.

Valuation: M&A to accelerate margin expansion

The stock now trades slightly above the average of its broader UK electronics peer group on a P/E basis for FY23 but is below industrial 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 0.6x well below the target range of 1.5–2.0x, a recently expanded credit facility and a strong pipeline of opportunities.

Review of FY22 results

Exhibit 1: FY22 results versus forecasts and FY21

£m

FY21a

FY22e

FY22a

Diff

y-o-y

Revenues

302.8

377.7

379.2

0.4%

25.2%

EBITDA

44.0

55.4

56.1

1.3%

27.5%

EBITDA margin

14.5%

14.7%

14.8%

0.1%

0.3%

Underlying operating profit

30.8

40.5

41.4

2.3%

34.4%

Underlying operating margin

10.2%

10.7%

10.9%

0.2%

0.7%

Normalised operating profit

31.9

42.9

44.8

4.5%

40.4%

Normalised operating margin

10.5%

11.3%

11.8%

0.5%

1.3%

Underlying PBT

27.2

36.3

37.6

3.6%

38.2%

Normalised PBT

28.3

38.7

41.0

5.9%

44.9%

Normalised net income

21.6

28.6

30.8

7.4%

42.4%

Normalised diluted EPS (p)

23.4

29.8

32.1

7.6%

37.1%

Underlying diluted EPS (p)

22.4

28.0

29.4

5.2%

31.1%

Reported basic EPS (p)

13.5

17.2

27.1

57.3%

100.4%

Dividend per share (p)

10.2

10.8

10.8

0.5%

6.4%

Net (debt)/cash

(47.2)

(37.9)

(30.2)

(20.2%)

(36.0%)

Net debt/EBITDA (x)

1.1

0.7

0.6

Source: discoverIE, Edison Investment Research

We upgraded our forecasts in April when discoverIE provided its year-end trading update. Results were ahead of our upgraded estimates, with underlying diluted EPS 5.2% ahead of our forecast and 4.4% ahead of consensus. Underlying operating profit was 2.2% ahead of our forecast, with net finance costs £0.4m below our forecast and the effective tax rate of 25.0% 1pp lower than our forecast. Reported EPS includes one-off charges of £6.5m relating to acquisitions, £14m amortisation of acquired intangibles, £3.4m in share-based payments and a £15.5m contribution from discontinued operations (£9.3m results for the year plus £6.2m gain on sale).

The company declared a final dividend of 7.45p per share to make a full year dividend of 10.8p, 0.05p ahead of our forecast.

During FY22, the company disposed of its Custom Supply business for £45m (with a further £5m deferred for three years), raised £55m (gross) from an equity issue, and spent £85m on three high margin acquisitions: Beacon, Antenova and CPI, all with 20%+ operating margins. Tight control of working capital resulted in net debt well below our estimate at year-end and gearing of 0.6x versus the 0.7x disclosed in the April trading update.

Order intake increased 36% y-o-y on an organic basis and 32% versus FY20. The order book at the end of FY22 stood at £224m, up 62% y-o-y on an organic basis and 71% versus end FY20.

New divisional presentation

This is the first full year of reporting for the company since Custom Supply was sold and the remaining Design & Manufacturing business was organised into two divisions: Magnetics & Controls and Sensing & Connectivity. Exhibit 2 summarises divisional revenue, order and operating profit performance.

Exhibit 2: Divisional performance

£m

FY22

FY21

Reported y-o-y

CER y-o-y

Organic CER y-o-y

Organic order growth y-o-y

Revenues

Magnetics & Controls

234.7

190.4

23%

27%

22%

36%

Sensing & Connectivity

144.5

112.4

29%

31%

11%

36%

Total revenues

379.2

302.8

25%

28%

18%

36%

Underlying operating profit

Magnetics & Controls

29.8

23.4

27%

Sensing & Connectivity

23.3

15.5

50%

Unallocated

(11.7)

(8.1)

44%

Total operating profit

41.4

30.8

34%

Underlying operating margin

Magnetics & Controls

12.7%

12.3%

0.4%

Sensing & Connectivity

16.1%

13.8%

2.3%

Total operating margin

10.9%

10.2%

0.7%

Source: discoverIE

Magnetics & Controls

This business saw reported revenue growth of 23% in FY22, or 27% on a CER basis. Organic constant currency growth was 22%. This division includes the Beacon business acquired in H122 as well as eight businesses operating in 16 countries. Two businesses in this division were affected by the shortage of semiconductor components, slightly reducing the gross margin, but despite this, underlying operating profit grew 27% y-o-y and the margin expanded by 0.4pp.

Orders increased 36% y-o-y on an organic basis to £280m with a book-to-bill ratio of 1.19:1 in FY22.

This division has 20 manufacturing facilities and during the year production began at a new, larger facility in Mexico. Capacity at facilities in the US and India is being expanded.

Sensing & Connectivity

This division includes the Antenova and CPI acquisitions that were made in H122 as well as 12 businesses operating in nine countries. Revenue grew 29% y-o-y on a reported basis, 31% at CER and 11% on an organic basis. Geographically, Europe saw 13% organic growth and Asia 6%, while the slower recovery of some transport infrastructure projects along with semiconductor shortages resulted in flat revenues in North America. Underlying operating profit increased 50% y-o-y and the margin expanded 2.3pp, helped by the higher margin acquisitions in H122.

Orders increased 36% y-o-y on an organic basis to £173m with a book-to-bill ratio of 1.20:1.

In both divisions, management has noted a trend for customers to localise production – in particular, it has seen volumes shift from China to India. This has an environmental benefit as product has shorter distances to travel to reach customers, and reduces an element of geopolitical risk.

Update on ESG strategy

When we wrote in December, we outlined the company’s ESG strategy and targets (Record order book drives upgrades). Since then, the company has been awarded an ‘A’ rating by MSCI.

As this is the first year that the UK requirement for Task Force on Climate-Related Financial Disclosures reporting is in force, the company has undertaken a preliminary assessment of the resilience of its business model and strategy and the potential effects of climate change over the short and medium term. It has concluded that while it is exposed to certain risks during the transition to a low carbon economy, such risks are considered to be low and are outweighed by opportunities presented to the company.

Since the disposal of the Custom Supply business, the target to reduce carbon emissions by 50% by 2025 (start point end CY19) has been rebased to reflect the remaining business (excluding acquisitions for the first 12 months). The strategy to achieve net zero is still being determined. As at the end of CY21, carbon emissions had been reduced by 33% compared to 6% at the end of CY20, mainly through switching to renewable sources of energy at manufacturing sites.

In 2020 the company set a target for 80% of operations, by revenue, to be covered by an ISO 14001 accreditation by the end of 2025. At the end of CY21, 63% of operations had achieved this accreditation.

Well financed for further M&A

After making three acquisitions in H122, the company paused for breath. With the decline in equity markets, we believe that pricing in private markets is likely to follow suit, which could provide opportunities for discoverIE.

In May, the company increased its syndicated banking facility from £180m to £240m and extended the term of the facility by two years to June 2026. It has an option to extend this to June 2027 as well as an £80m accordion facility. Gearing of 0.6x at the end of FY22 was well below the target range of 1.5–2.0x providing plenty of headroom for further deals.

Update on targets

The company regularly updates on its target key strategic indicators (KSIs) and key performance indicators (KPIs) – see Exhibit 3. With the FY21 performance affected by the COVID pandemic, the company has treated FY21 and FY22 as a composite period to show the real underlying performance. The table shows performance including Custom Supply up to and including FY20.

discoverIE is making good progress towards its FY25 targets. Looking at the KSIs, the company expects to meet the operating margin target through a combination of organic growth and acquisitions of higher-margin businesses (targeting companies with a minimum 15% operating margin). Sales from target markets reached 76% of the total and made up 86% of design wins during FY22.

Looking at the KPIs, group organic revenue of 14% compared to FY20 (18% versus FY21) was well ahead of GDP growth over the same period (9% from March 2020 to March 2022). The company has achieved a compound annual growth rate (CAGR) of 10% for organic revenue from FY18–22. Underlying EPS grew 20% compared to FY20 and has grown at a CAGR of 26% FY18–22. While ROCE slipped just below the 15% target, the company noted that acquisitions often start below the target but as they are integrated, move above it. Operating profit and free cash flow conversion both exceeded 100% compared with their 85% targets averaged over a two year-period (as disclosed in Exhibit 3). On a one-year basis, operating profit conversion was 141% in FY21 and 80% in FY22, reflecting working capital flows as revenue declined during the pandemic and then recovered in FY22. Free cash flow conversion was 157% in FY21 and 77% in FY22, for similar reasons.

Exhibit 3: Key strategic and performance indicators

Source: discoverIE ROCE: return on capital employed

Outlook and changes to forecasts

Management noted that FY23 has started well, with continued strong growth in organic sales and the order book at record high levels. While supply chain headwinds and inflationary pressures remain, the company views these as manageable.

The company has generally been able to pass on increased input costs to customers, although this may not always be the case if cost increases show no sign of abating. Management noted that pricing for some raw materials has started to stabilise, and it is seeing better availability of some semiconductor components. In-house manufacturing tends to use a relatively low level of bought-in components, which reduces the company’s exposure to supply chain shortages. Labour costs are increasing at double-digit rates in lower cost regions and at c 4–5% in higher cost regions, with bonus schemes helping to dampen demand for increases.

The strong order book at the end of FY22 provides the company with c 6.5 months of revenue visibility, up from the low of c 2.5 months during the pandemic and a pre-COVID level of 4–4.5 months. Customers have been placing both higher volumes of orders and ordering further ahead to be sure of availability. While it is possible that some customers may reduce their own inventory as supply chain issues abate, any slowdown in order intake is likely to be due to reverting to shorter order windows. Management believes it is likely that growth of the order book will moderate and revert to pre-COVID levels (in terms of months of revenue), although it has seen no signs of this happening yet.

We have revised our forecasts to reflect the better-than-expected outturn in FY22. We raise our revenue estimate by 1% in FY23 and our underlying EPS estimate by 4.8%. For FY24, we conservatively forecast revenue growth of 3% and underlying EPS growth of 3.6%.

Exhibit 4: Changes to forecasts

£m

FY23e old

FY23e new

Change

y-o-y

FY24e new

y-o-y

Revenues

396.4

400.4

1.0%

5.6%

412.4

3.0%

EBITDA

58.2

58.7

0.9%

4.7%

60.2

2.5%

EBITDA margin

14.7%

14.7%

(0.0%)

(0.1%)

14.6%

(0.1%)

Underlying operating profit

42.7

43.7

2.3%

5.7%

45.0

2.8%

Underlying operating margin

10.8%

10.9%

0.1%

0.0%

10.9%

(0.0%)

Normalised operating profit

45.1

46.1

2.2%

3.0%

47.4

2.7%

Normalised operating margin

11.4%

11.5%

0.1%

(0.3%)

11.5%

(0.0%)

Underlying PBT

38.4

39.7

3.4%

5.5%

41.3

4.1%

Normalised PBT

40.8

42.1

3.2%

2.6%

43.7

3.9%

Normalised net income

30.0

31.4

4.6%

2.0%

32.6

3.9%

Normalised diluted EPS (p)

30.5

32.0

4.6%

(0.5%)

33.0

3.4%

Underlying diluted EPS (p)

28.8

30.1

4.8%

2.4%

31.2

3.6%

Reported basic EPS (p)

14.6

15.7

7.3%

(42.0%)

16.9

7.6%

Dividend per share (p)

11.2

11.2

0.0%

3.2%

11.5

3.1%

Net (debt)/cash

(31.6)

(32.9)

3.9%

8.9%

(22.9)

(30.5%)

Net debt/EBITDA (x)

0.6

0.6

0.4

Source: Edison Investment Research

Valuation

The share price is down 33% year-to-date, slightly more than the average for the peer group of 28%. It now trades marginally above the average of its broader UK electronics peer group on a P/E basis for FY23 but is below industrial 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 0.6x well below the target range of 1.5–2.0x, a recently expanded credit facility and a strong pipeline of opportunities.

Exhibit 5: Peer valuation multiples

EV/sales (x)

EV/EBITDA (x)

EV/EBIT (x)

P/E (x)

Div yield (%)

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

DiscoverIE

1.7

1.7

11.6

11.4

14.8

14.4

22.7

21.9

1.6

1.7

Diploma

3.3

3.0

15.3

14.2

18.6

17.1

22.0

20.5

2.2

2.3

Gooch & Housego

1.8

1.6

11.7

9.6

20.3

15.3

24.1

18.4

1.4

1.5

TT electronics

0.9

0.8

7.8

6.7

10.6

8.8

11.3

9.4

3.3

3.8

XP Power

2.4

2.3

10.1

9.1

12.9

11.2

15.4

13.9

3.1

3.3

Avon Protection

1.6

1.5

11.5

7.4

18.8

11.4

22.5

12.3

3.9

4.3

Halma

4.8

4.5

18.8

17.6

22.3

20.8

28.0

26.2

1.0

1.1

Spectris

2.3

2.2

11.4

10.7

13.5

12.8

18.3

16.7

2.6

2.8

Spirax-Sarco Engineering

4.8

4.5

17.2

16.0

19.9

18.6

26.9

25.2

1.5

1.6

Average

2.7

2.5

13.0

11.4

17.1

14.5

21.1

17.8

2.4

2.6

Premium/(discount) to average

(37.4)

(34.9)

(10.2)

(0.4)

(13.4)

(0.3)

7.9

23.2

(32.3)

(35.6)

Source: Edison Investment Research, Refinitiv. Note: Priced at 16 June 2022.


Exhibit 6: 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

400.4

412.4

EBITDA

 

 

43.6

44.0

56.1

58.7

60.2

Normalised operating Profit (before am, SBP and except.)

31.6

31.9

44.8

46.1

47.4

Underlying operating Profit (before am. and except.)

29.8

30.8

41.4

43.7

45.0

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

24.2

25.5

Net Interest

(4.3)

(3.6)

(3.8)

(4.1)

(3.7)

Profit Before Tax (norm)

 

 

27.3

28.3

41.0

42.1

43.7

Profit Before Tax (FRS 3)

 

 

12.2

13.5

17.1

20.2

21.8

Tax

(3.3)

(4.0)

(7.4)

(5.1)

(5.5)

Profit After Tax (norm)

21.8

21.6

30.8

31.4

32.6

Profit After Tax (FRS 3)

8.9

9.5

9.7

15.0

16.3

Discontinued operations

5.4

2.5

15.5

0.0

0.0

Net income (norm)

21.8

21.6

30.8

31.4

32.6

Net income (FRS 3)

14.3

12.0

25.2

15.0

16.3

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

32.0

33.0

EPS - underlying, diluted (p)

 

 

24.4

22.4

29.4

30.1

31.2

EPS - IFRS basic (p)

 

 

17.0

13.5

27.1

15.7

16.9

EPS - IFRS diluted (p)

 

 

16.5

13.0

26.3

15.3

16.5

Dividend per share (p)

3.0

10.2

10.8

11.2

11.5

EBITDA Margin (%)

14.6

14.5

14.8

14.7

14.6

Normalised operating margin (before am, SBP and except.) (%)

10.6

10.5

11.8

11.5

11.5

discoverIE underlying operating margin (%)

10.0

10.2

10.9

10.9

10.9

BALANCE SHEET

Fixed Assets

 

 

236.4

244.6

326.5

318.9

307.1

Intangible Assets

182.2

190.8

263.3

252.8

238.3

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

204.5

214.6

Stocks

68.4

67.7

77.8

85.6

88.1

Debtors

90.1

84.9

78.0

85.6

88.1

Cash

36.8

29.2

39.4

31.7

36.7

Current Liabilities

 

 

(103.6)

(107.8)

(120.9)

(126.9)

(130.2)

Creditors

(94.0)

(102.2)

(114.2)

(120.2)

(123.5)

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

295.8

302.0

CASH FLOW

Operating Cash Flow

 

 

48.0

56.8

42.5

44.3

53.3

Net Interest

(3.7)

(3.1)

(3.3)

(3.6)

(3.2)

Tax

(6.4)

(7.2)

(7.1)

(10.7)

(11.1)

Capex

(6.3)

(3.9)

(6.2)

(9.0)

(9.0)

Acquisitions/disposals

(73.6)

(20.5)

(46.8)

(6.0)

(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

(2.5)

10.0

Opening net cash/(debt)

 

 

(63.3)

(61.3)

(47.2)

(30.3)

(32.9)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

Other

(1.8)

1.4

1.1

0.0

0.0

Closing net cash/(debt)

 

 

(61.3)

(47.2)

(30.3)

(32.9)

(22.9)

Source: discoverIE, Edison Investment Research


General disclaimer and copyright

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Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by discoverIE Group and prepared and issued by Edison, in consideration of a fee payable by discoverIE Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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