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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
With Q423 trading slightly better than expected, discoverIE is on track to deliver FY23 underlying earnings ahead of board expectations. The year-end order book was also higher than anticipated due to stronger than expected order intake in Q423, providing good visibility for FY24. We have upgraded our underlying EPS forecasts for FY23 and FY24 and reduced our net debt forecasts over the same period.
discoverIE Group |
Upgrading on strong close to FY23 |
FY23 trading update |
Electrical components |
20 April 2023 |
Share price performance
Business description
Next events
Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
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With Q423 trading slightly better than expected, discoverIE is on track to deliver FY23 underlying earnings ahead of board expectations. The year-end order book was also higher than anticipated due to stronger than expected order intake in Q423, providing good visibility for FY24. We have upgraded our underlying EPS forecasts for FY23 and FY24 and reduced our net debt forecasts over the same period.
Year end |
Revenue |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/21 |
302.8 |
27.2 |
22.4 |
10.15 |
34.2 |
1.3% |
03/22 |
379.2 |
37.6 |
29.4 |
10.80 |
26.1 |
1.4% |
03/23e |
439.8 |
44.4 |
33.3 |
11.45 |
23.0 |
1.5% |
03/24e |
453.4 |
45.3 |
34.1 |
12.00 |
22.5 |
1.6% |
Note: *PBT and EPS as per discoverIE’s underlying metric, excluding amortisation of acquired intangibles and exceptional items.
Closing the year ahead of expectations
discoverIE expects to report 16% revenue growth for FY23, ahead of our 14% forecast, with 8% organic growth (in both divisions), a 5% contribution from acquisitions and 3% from foreign exchange. Q423 revenue growth was 8% yearon-year (2% organic, 3% foreign exchange, 3% acquisitions). Gross margins remain robust and the semiconductor supply issues that affected two of discoverIE’s 21 businesses have largely been resolved. With the continued positive trading momentum through Q423, management anticipates reporting underlying FY23 earnings ahead of board expectations. Year-end net debt/EBITDA was 0.9x, below our 1.0x forecast.
Upgrading forecasts
The company had previously flagged that it expected the order book to normalise from the record end-H123 level as orders shipped. The year-end order book was in line with the prior year and was higher than expected due to stronger order intake in Q423, which was up 16% quarter-on-quarter and in line with sales. We have revised our FY23 and FY24 forecasts to reflect stronger revenue growth, resulting in upgrades to underlying EPS of 3.2% for FY23 and 1.9% for FY24. We have also reduced our net debt forecast for both years, resulting in gearing of 0.9x at the end of FY23 and 0.7x at the end of FY24. This is well below the target range of 1.5–2.0x, providing headroom for further acquisitions. The company noted that the acquisition pipeline continues to build with good potential opportunities for FY24.
Valuation: Well positioned for growth
The stock is trading in line with the average of its broader UK industrial technology peer group on a P/E basis for FY23, but 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 ample headroom for further acquisitions and a strong pipeline of opportunities, which could well be boosted by the current uncertain macroeconomic environment.
Changes to forecasts
Exhibit 1: Changes to forecasts
£m |
FY23e old |
FY23e new |
Change |
y-o-y |
FY24e old |
FY24e new |
Change |
y-o-y |
Revenues |
432.0 |
439.8 |
1.8% |
16.0% |
445.3 |
453.4 |
1.8% |
3.1% |
EBITDA |
63.3 |
64.8 |
2.3% |
15.5% |
67.2 |
68.2 |
1.5% |
5.3% |
EBITDA margin |
14.7% |
14.7% |
0.1% |
(0.1%) |
15.1% |
15.0% |
(0.0%) |
0.3% |
Underlying operating profit |
48.3 |
49.8 |
3.1% |
20.2% |
51.1 |
52.1 |
2.0% |
4.7% |
Underlying operating margin |
11.2% |
11.3% |
0.1% |
0.4% |
11.5% |
11.5% |
0.0% |
0.2% |
Normalised operating profit |
50.7 |
52.2 |
2.9% |
16.5% |
53.5 |
54.5 |
1.9% |
4.5% |
Normalised operating margin |
11.7% |
11.9% |
0.1% |
0.0% |
12.0% |
12.0% |
0.0% |
0.2% |
Underlying PBT |
43.0 |
44.4 |
3.2% |
18.1% |
44.5 |
45.3 |
1.9% |
2.1% |
Normalised PBT |
45.4 |
46.8 |
3.0% |
14.2% |
46.9 |
47.7 |
1.8% |
2.0% |
Normalised net income |
33.6 |
34.6 |
3.0% |
12.6% |
35.0 |
35.6 |
1.8% |
2.8% |
Normalised diluted EPS (p) |
34.1 |
35.1 |
3.0% |
9.4% |
35.3 |
35.9 |
1.8% |
2.3% |
Underlying diluted EPS (p) |
32.3 |
33.3 |
3.2% |
13.2% |
33.5 |
34.1 |
1.9% |
2.4% |
Reported basic EPS (p) |
18.2 |
19.2 |
5.8% |
(29.1%) |
20.0 |
20.7 |
3.2% |
7.5% |
Dividend per share (p) |
11.5 |
11.5 |
0.0% |
6.0% |
12.0 |
12.0 |
0.0% |
4.8% |
Net (debt)/cash |
(59.3) |
(54.6) |
(7.9%) |
80.7% |
(46.5) |
(41.1) |
(11.7%) |
(24.7%) |
Net debt/EBITDA (x) |
1.0 |
0.9 |
0.8 |
0.7 |
Source: Edison Investment Research
Exhibit 2: 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 |
439.8 |
453.4 |
EBITDA |
|
|
43.6 |
44.0 |
56.1 |
64.8 |
68.2 |
Normalised operating Profit (before am, SBP and except.) |
31.6 |
31.9 |
44.8 |
52.2 |
54.5 |
||
Underlying operating Profit (before am. and except.) |
29.8 |
30.8 |
41.4 |
49.8 |
52.1 |
||
Amortisation of acquired intangibles |
(9.0) |
(11.1) |
(14.0) |
(16.5) |
(15.6) |
||
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 |
30.3 |
33.5 |
||
Net Interest |
(4.3) |
(3.6) |
(3.8) |
(5.4) |
(6.8) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
41.0 |
46.8 |
47.7 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
17.1 |
24.9 |
26.7 |
Tax |
(3.3) |
(4.0) |
(7.4) |
(6.5) |
(6.8) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
30.8 |
34.6 |
35.6 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
9.7 |
18.4 |
20.0 |
||
Discontinued operations |
5.4 |
2.5 |
15.5 |
0.0 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
30.8 |
34.6 |
35.6 |
||
Net income (FRS 3) |
14.3 |
12.0 |
25.2 |
18.4 |
20.0 |
||
Ave. Number of Shares Outstanding (m) |
84.0 |
88.8 |
93.0 |
95.9 |
96.6 |
||
EPS - normalised & diluted (p) |
|
|
25.1 |
23.4 |
32.1 |
35.1 |
35.9 |
EPS - underlying, diluted (p) |
|
|
24.4 |
22.4 |
29.4 |
33.3 |
34.1 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
27.1 |
19.2 |
20.7 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
26.3 |
18.7 |
20.1 |
Dividend per share (p) |
2.97 |
10.15 |
10.80 |
11.45 |
12.00 |
||
EBITDA Margin (%) |
14.6 |
14.5 |
14.8 |
14.7 |
15.0 |
||
Normalised operating margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.8 |
11.9 |
12.0 |
||
discoverIE underlying operating margin (%) |
10.0 |
10.2 |
10.9 |
11.3 |
11.5 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
236.4 |
244.6 |
326.5 |
342.9 |
331.1 |
Intangible Assets |
182.2 |
190.8 |
263.3 |
276.8 |
262.3 |
||
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 |
194.8 |
208.9 |
Stocks |
68.4 |
67.7 |
77.8 |
91.6 |
94.4 |
||
Debtors |
90.1 |
84.9 |
78.0 |
91.6 |
94.4 |
||
Cash |
36.8 |
29.2 |
39.4 |
10.0 |
18.5 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(120.9) |
(137.9) |
(141.7) |
Creditors |
(94.0) |
(102.2) |
(114.2) |
(131.2) |
(135.0) |
||
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) |
(100.6) |
(89.6) |
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) |
(22.3) |
(17.0) |
||
Net Assets |
|
|
200.5 |
208.4 |
290.4 |
299.1 |
308.7 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
42.5 |
49.4 |
61.3 |
Net Interest |
(3.7) |
(3.1) |
(3.3) |
(4.9) |
(6.3) |
||
Tax |
(6.4) |
(7.2) |
(7.1) |
(12.2) |
(12.1) |
||
Capex |
(6.3) |
(3.9) |
(6.2) |
(9.0) |
(9.0) |
||
Acquisitions/disposals |
(73.6) |
(20.5) |
(46.8) |
(30.0) |
(2.0) |
||
Financing |
53.9 |
(6.6) |
46.1 |
(7.2) |
(7.2) |
||
Dividends |
(8.1) |
(2.8) |
(9.4) |
(10.5) |
(11.2) |
||
Net Cash Flow |
3.8 |
12.7 |
15.8 |
(24.3) |
13.5 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(30.2) |
(54.6) |
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) |
(54.6) |
(41.1) |
Source: discoverIE, Edison Investment Research
|
|
Research: Healthcare
Mendus recapped highlights of the positive clinical readouts from its ADVANCE II study in acute myeloid leukaemia (AML) in an investor update in conjunction with its annual filing. Management intends to continue focusing on the development of vididencel (DCP-001) and broaden its positioning as an AML maintenance therapy with two additional studies in AML, a Phase I study in AML patients post-hematopoietic stem cell transplantation (HSCT) and a Phase II trial in combination with standard-of-care azacitidine. We expect updates on the timing of these studies in FY23. In our view, a key operational development in FY22 was the optimisation of the production process for Mendus’s second clinical asset, ilixadencel, providing a robust manufacturing protocol that ensures consistent supply for future clinical trials. Mendus is now preparing a Phase II study to establish clinical proof of concept in gastrointestinal stromal tumours (GIST), initiation of which we view as the next clinical milestone for ilixadencel. Our valuation of Mendus remains virtually unchanged at SEK1.8bn or SEK9.07/share (previously SEK1.8bn or 9.31/share)
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