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Currency in GBP
Last close As at 09/06/2023
GBP9.15
▲ 2.00 (0.22%)
Market capitalisation
GBP882m
Research: TMT
In Q123, discoverIE saw a continuation of the strong organic growth reported in FY22, with revenue 17% higher y-o-y on an organic basis and 27% higher at constant exchange rates (CER). Book-to-bill was 1.09x for the quarter and the period-end orderbook was 40% higher year-on-year on an organic basis. With underlying Q123 earnings ahead of the board’s expectations, we have upgraded our underlying EPS forecasts by 4.0% in FY23 and 3.2% in FY24.
discoverIE Group |
Upgrading on strong organic growth |
Q123 trading update |
Tech hardware and equipment |
29 July 2022 |
Share price performance
Business description
Next events
Analysts
discoverIE Group is a research client of Edison Investment Research Limited |
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In Q123, discoverIE saw a continuation of the strong organic growth reported in FY22, with revenue 17% higher y-o-y on an organic basis and 27% higher at constant exchange rates (CER). Book-to-bill was 1.09x for the quarter and the period-end orderbook was 40% higher year-on-year on an organic basis. With underlying Q123 earnings ahead of the board’s expectations, we have upgraded our underlying EPS forecasts by 4.0% in FY23 and 3.2% in FY24.
Year end |
Revenue |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/21 |
302.8 |
27.2 |
22.4 |
10.15 |
32.9 |
1.4 |
03/22 |
379.2 |
37.6 |
29.4 |
10.80 |
25.1 |
1.5 |
03/23e |
414.6 |
41.7 |
31.6 |
11.15 |
23.3 |
1.5 |
03/24e |
425.3 |
43.1 |
32.6 |
11.50 |
22.6 |
1.6 |
Note: *PBT and EPS as per discoverIE’s underlying metric, excluding amortisation of acquired intangibles and exceptional items.
Continued strong organic growth in Q123
discoverIE’s Q123 trading update confirmed that the company continues to see strong organic growth in revenue and bookings. Q123 revenue was 27% higher year-on-year CER and 17% higher on an organic basis. The absolute bookings number was not disclosed, but book-to-bill was 1.09x and the order book at the end of June of £240m was 40% higher organically y-o-y and 7% higher quarter-on-quarter. The company expects the order book level to normalise as it converts to sales over the course of the year. Gross margins have remained resilient and the semiconductor shortages affecting two of its 21 businesses remain tight but have improved. At the Sri Lankan manufacturing facility (which accounts for 6% of sales), operations remain at expected output levels despite local unrest and the company has developed contingency plans to move production to other facilities if need be.
Upgrading forecasts
With underlying earnings for Q123 ahead of the board’s expectations, we have upgraded our forecasts. We raise our revenue forecasts by 3.0% in FY23 and 2.4% in FY24, resulting in 0.2pp increases in underlying operating margins in both years and underlying EPS upgrades of 4.0% in FY23 and 3.2% in FY24.
Valuation: Discount has widened
The stock is trading at a small discount to the average of its broader UK industrial technology peer group on a P/E basis for FY23 but at a much wider 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 headroom for further acquisitions, with pro forma gearing of 0.7x well below the target range of 1.5–2.0x, a recently expanded credit facility and a strong pipeline of opportunities.
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 |
402.6 |
414.6 |
3.0% |
9.3% |
415.3 |
425.3 |
2.4% |
2.6% |
|
EBITDA |
59.3 |
61.3 |
3.4% |
9.3% |
61.0 |
62.7 |
2.8% |
2.2% |
|
EBITDA margin |
14.7% |
14.8% |
0.1% |
(0.0%) |
14.7% |
14.7% |
0.1% |
(0.0%) |
|
Underlying operating profit |
44.3 |
46.3 |
4.5% |
11.8% |
45.8 |
47.5 |
3.8% |
2.5% |
|
Underlying operating margin |
11.0% |
11.2% |
0.2% |
0.2% |
11.0% |
11.2% |
0.1% |
(0.0%) |
|
Normalised operating profit |
46.7 |
48.7 |
4.3% |
8.7% |
48.2 |
49.9 |
3.6% |
2.4% |
|
Normalised operating margin |
11.6% |
11.7% |
0.1% |
(0.1%) |
11.6% |
11.7% |
0.1% |
(0.0%) |
|
Underlying PBT |
40.1 |
41.7 |
4.0% |
10.8% |
41.8 |
43.1 |
3.2% |
3.5% |
|
Normalised PBT |
42.5 |
44.1 |
3.8% |
7.5% |
44.2 |
45.5 |
3.0% |
3.3% |
|
Normalised net income |
31.7 |
32.9 |
3.8% |
6.9% |
33.0 |
34.0 |
3.0% |
3.3% |
|
Normalised diluted EPS (p) |
32.3 |
33.5 |
3.8% |
4.3% |
33.4 |
34.4 |
3.0% |
2.8% |
|
Underlying diluted EPS (p) |
30.4 |
31.6 |
4.0% |
7.5% |
31.6 |
32.6 |
3.2% |
3.0% |
|
Reported basic EPS (p) |
16.0 |
17.3 |
7.8% |
(36.3%) |
17.3 |
18.3 |
5.9% |
6.0% |
|
Dividend per share (p) |
11.2 |
11.2 |
0.0% |
3.2% |
11.5 |
11.5 |
0.0% |
3.1% |
|
Net (debt)/cash |
(37.9) |
(38.4) |
1.2% |
27.1% |
(27.6) |
(26.8) |
(3.0%) |
(30.1%) |
|
Net debt/EBITDA (x) |
0.7 |
0.7 |
0.5 |
0.5 |
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 |
414.6 |
425.3 |
EBITDA |
|
|
43.6 |
44.0 |
56.1 |
61.3 |
62.7 |
Normalised operating Profit (before am, SBP and except.) |
31.6 |
31.9 |
44.8 |
48.7 |
49.9 |
||
Underlying operating Profit (before am. and except.) |
|
29.8 |
30.8 |
41.4 |
46.3 |
47.5 |
|
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 |
26.8 |
28.0 |
||
Net Interest |
(4.3) |
(3.6) |
(3.8) |
(4.6) |
(4.4) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
41.0 |
44.1 |
45.5 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
17.1 |
22.2 |
23.6 |
Tax |
(3.3) |
(4.0) |
(7.4) |
(5.6) |
(6.0) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
30.8 |
32.9 |
34.0 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
9.7 |
16.5 |
17.6 |
||
Discontinued operations |
5.4 |
2.5 |
15.5 |
0.0 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
30.8 |
32.9 |
34.0 |
||
Net income (FRS 3) |
14.3 |
12.0 |
25.2 |
16.5 |
17.6 |
||
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 |
33.5 |
34.4 |
EPS - underlying, diluted (p) |
|
|
24.4 |
22.4 |
29.4 |
31.6 |
32.6 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
27.1 |
17.3 |
18.3 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
26.3 |
16.8 |
17.8 |
Dividend per share (p) |
2.97 |
10.15 |
10.80 |
11.15 |
11.50 |
||
EBITDA Margin (%) |
14.6 |
14.5 |
14.8 |
14.8 |
14.7 |
||
Normalised operating margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.8 |
11.7 |
11.7 |
||
discoverIE underlying operating margin (%) |
10.0 |
10.2 |
10.9 |
11.2 |
11.2 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
236.4 |
244.6 |
326.5 |
323.9 |
312.1 |
Intangible Assets |
182.2 |
190.8 |
263.3 |
257.8 |
243.3 |
||
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 |
205.0 |
216.2 |
Stocks |
68.4 |
67.7 |
77.8 |
88.6 |
90.9 |
||
Debtors |
90.1 |
84.9 |
78.0 |
88.6 |
90.9 |
||
Cash |
36.8 |
29.2 |
39.4 |
26.2 |
32.8 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(120.9) |
(130.9) |
(133.8) |
Creditors |
(94.0) |
(102.2) |
(114.2) |
(124.2) |
(127.1) |
||
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 |
297.4 |
304.9 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
42.5 |
44.8 |
56.0 |
Net Interest |
(3.7) |
(3.1) |
(3.3) |
(4.1) |
(3.9) |
||
Tax |
(6.4) |
(7.2) |
(7.1) |
(11.2) |
(11.6) |
||
Capex |
(6.3) |
(3.9) |
(6.2) |
(9.0) |
(9.0) |
||
Acquisitions/disposals |
(73.6) |
(20.5) |
(46.8) |
(11.0) |
(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 |
(8.1) |
11.6 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(30.2) |
(38.4) |
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) |
(38.4) |
(26.8) |
Source: discoverIE, Edison Investment Research
|
|
Research: Healthcare
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