discoverIE Group — Trading strengthens through H221

discoverIE Group (LSE: DSCV)

Last close As at 22/06/2024

GBP6.96

9.00 (1.31%)

Market capitalisation

GBP671m

More on this equity

Research: TMT

discoverIE Group — Trading strengthens through H221

Trading has improved through the course of H221, with order intake for the four months to the end of January up 10% y-o-y on an organic basis and average monthly sales up 4% compared to H121. As discoverIE expects to report underlying EPS at the upper end of consensus forecasts, we have raised our FY21 forecasts, driving a 4% EPS upgrade.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

discoverIE Group

Trading strengthens through H221

Trading update

Tech hardware & equipment

10 February 2021

Price

700p

Market cap

£626m

€1.14:US$1.38:£1

Net debt (£m) at end H121

42.1

Shares in issue

89.5m

Free float

96%

Code

DSCV

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.6)

15.5

23.7

Rel (local)

(0.8)

7.9

37.6

52-week high/low

748p

378p

Business description

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

Next events

FY21 trading update

April 2021

Analyst

Katherine Thompson

+44 (0)20 3077 5730

discoverIE Group is a research client of Edison Investment Research Limited

Trading has improved through the course of H221, with order intake for the four months to the end of January up 10% y-o-y on an organic basis and average monthly sales up 4% compared to H121. As discoverIE expects to report underlying EPS at the upper end of consensus forecasts, we have raised our FY21 forecasts, driving a 4% EPS upgrade.

Year end

Revenue (£m)

PBT*
(£m)

Dil. EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/19

438.9

28.4

28.4

9.6

24.6

1.4

03/20

466.4

34.6

31.8

3.0

22.0

0.4

03/21e

448.6

29.4

23.9

10.4

29.3

1.5

03/22e

486.5

32.4

26.4

10.7

26.6

1.5

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

Improved trading H2 to date

For the first four months of H221, discoverIE saw trading continue to strengthen, with underlying earnings expected towards the upper end of market expectations. Over this period, average monthly sales increased 4% compared to H121. On an organic basis, Design & Manufacturing sales were 3% lower y-o-y, while Custom Supply sales were 10% lower y-o-y, with group sales down 5% y-o-y. Year to date, group orders and sales are down 5% at constant exchange rates (CER) and down 4% on a reported basis. Phoenix America (acquired in October 2020) is performing well and in line with expectations, and the company expects to close the Limitor acquisition later this month. Gearing at the end of January stood at 1.1x and, once the Limitor acquisition is taken into account, rises to 1.35x. This is below the target range of 1.5–2.0x, providing good funding headroom for acquisitions.

Order intake returns to growth

Order intake has strengthened over the period, with orders up 10% y-o-y on an organic basis and a book-to-bill of 1.17:1. The group order book of £162m is 2% higher y-o-y CER and up 14% compared to the end of H121. To reflect stronger trading, we have raised our FY21 forecasts, resulting in an increase in underlying diluted EPS of 4%.

Valuation: Discount to peers reducing

The stock is trading at a c 13% discount to its peer group on an FY21e P/E basis, down from 18% when we last wrote. 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, 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 approaching 2%.

Changes to forecasts

Exhibit 1: Changes to forecasts

£m

FY21e

FY22e new

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

445.7

448.6

0.6%

(3.8%)

486.5

486.5

0.0%

8.5%

Design & manufacturing

291.0

293.9

1.0%

(1.4%)

323.3

323.3

0.0%

10.0%

Custom supply

154.7

154.7

0.0%

(8.2%)

163.2

163.2

0.0%

5.5%

Gross margin

33.7%

33.7%

0.0%

0.1%

33.8%

33.8%

0.0%

0.1%

EBITDA

45.3

46.4

2.3%

(8.9%)

49.7

49.8

0.0%

7.3%

EBITDA margin

10.2%

10.3%

0.2%

(0.6%)

10.2%

10.2%

0.0%

(0.1%)

Underlying operating profit

31.3

32.4

3.4%

(12.8%)

35.5

35.6

0.0%

9.9%

Underlying operating margin

7.0%

7.2%

0.2%

(0.7%)

7.3%

7.3%

0.0%

0.1%

Normalised operating profit

32.9

34.0

3.2%

(12.7%)

37.3

37.4

0.0%

10.0%

Normalised operating margin

7.4%

7.6%

0.2%

(0.8%)

7.7%

7.7%

0.0%

0.1%

Normalised PBT

28.3

29.4

3.7%

(15.1%)

32.4

32.4

0.0%

10.2%

Normalised net income

21.2

22.0

3.7%

(20.3%)

24.3

24.3

0.0%

10.2%

Normalised diluted EPS (p)

23.0

23.9

3.7%

(24.9%)

26.4

26.4

0.0%

10.3%

Underlying diluted EPS (p)

21.7

22.6

4.0%

(25.1%)

24.9

24.9

0.0%

10.1%

Reported basic EPS (p)

11.3

12.2

7.9%

(28.4%)

13.3

13.3

0.0%

9.3%

Dividend per share (p)

10.4

10.4

0.0%

250.2%

10.7

10.7

0.0%

2.9%

Net (debt)/cash

(66.0)

(65.7)

(0.5%)

7.1%

(65.7)

(64.9)

(1.2%)

(1.2%)

Net debt/EBITDA (x)

1.6

1.6

1.5

1.5

Source: Edison Investment Research

Exhibit 2: 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

448.6

486.5

Cost of Sales

(186.7)

(195.1)

(227.2)

(261.2)

(293.9)

(309.7)

(297.5)

(322.1)

Gross Profit

84.4

92.6

111.0

126.7

145.0

156.7

151.1

164.4

EBITDA

 

 

16.6

19.8

24.3

29.3

37.0

50.9

46.4

49.8

Operating Profit (before am, SBP and except.)

 

14.0

17.0

20.6

25.2

31.8

38.9

34.0

37.4

Operating Profit (before am. and except.)

 

13.4

16.3

20.0

24.5

30.6

37.1

32.4

35.6

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

19.1

21.0

Net Interest

(1.6)

(1.8)

(2.8)

(2.6)

(3.4)

(4.3)

(4.6)

(5.0)

Profit Before Tax (norm)

 

 

12.4

15.2

17.8

22.6

28.4

34.6

29.4

32.4

Profit Before Tax (FRS 3)

 

 

4.3

9.4

4.8

14.6

19.3

19.5

14.5

15.9

Tax

(1.4)

(2.2)

(1.3)

(4.0)

(4.7)

(5.2)

(3.6)

(4.0)

Profit After Tax (norm)

10.0

11.8

13.6

17.1

21.5

27.6

22.0

24.3

Profit After Tax (FRS 3)

2.9

7.2

3.5

10.6

14.6

14.3

10.9

11.9

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

23.9

26.4

EPS - IFRS basic (p)

 

 

5.0

11.4

5.3

15.0

20.0

17.0

12.2

13.3

EPS - IFRS diluted (p)

 

 

4.8

10.9

5.1

14.2

19.4

16.5

11.8

12.9

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

10.3

10.2

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

5.2

5.9

6.1

6.5

7.2

8.3

7.6

7.7

discoverIE adjusted operating margin (%)

4.9

5.7

5.9

6.3

7.0

8.0

7.2

7.3

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

190.5

199.6

Stocks

39.8

42.9

48.8

58.1

66.2

68.4

71.3

77.0

Debtors

60.2

65.5

77.3

84.6

88.7

90.1

89.7

97.3

Cash

26.7

19.9

21.0

21.9

22.9

36.8

27.4

23.2

Current Liabilities

 

 

(62.1)

(61.7)

(78.1)

(94.0)

(96.0)

(103.6)

(107.3)

(115.1)

Creditors

(61.9)

(60.9)

(77.1)

(87.6)

(94.3)

(94.0)

(97.7)

(105.5)

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

207.7

211.9

CASH FLOW

Operating Cash Flow

 

 

6.6

14.6

20.5

21.7

30.0

48.0

45.6

42.2

Net Interest

(1.6)

(1.8)

(2.8)

(2.6)

(3.4)

(3.7)

(4.6)

(5.0)

Tax

(3.3)

(4.3)

(3.0)

(3.7)

(3.8)

(6.4)

(7.3)

(8.1)

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

(4.4)

0.8

Opening net cash/(debt)

 

 

1.8

(19.0)

(38.1)

(30.0)

(52.4)

(63.3)

(61.3)

(65.7)

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)

(65.7)

(64.9)

Source: discoverIE, Edison Investment Research


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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 £49,500 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.

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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 £49,500 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.

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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.

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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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Research: Metals & Mining

Newmont Corporation — The sustainable leader

Even with investment in new growth projects, we expect Newmont’s pre-financing cash flows to increase by 47.4%, from US$2.6bn to US$3.9bn (or US$4.83/share) by FY25 and to continue to increase thereafter as past investment is brought to account and net debt potentially extinguished. At the same time, shareholders will also benefit from a market-leading dividend as well as a share buyback programme of approximately the same order of magnitude.

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