Acal Plc (LON:ACL), now known as DiscoverIE, ended its financial half-year with a record order book.
The second half of the financial year to end-March has started well and the group is on track to deliver full-year performance in line with management’s expectations.
READ: Acal building momentum with its higher margin strategy
The supplier of customised electronics to industry posted a 42% increase in underlying profit before tax of £10.4mln in the six months to the end of September from £7.3mln the year before.
Revenue was up 21%, or 15% on a constant exchange rate basis, to £190.2mln from £156.7mln the previous year.
A strong inflow of orders meant that the value of the order book rose 16% year-on-year (on a constant exchange rates basis) to £111mln.
The underlying operating margin rose to 6.2% from 5.6% the year before, reflecting the group’s focus on higher margin products and customer solutions.
Underlying earnings per share rose 24% to 10.5p from 8.5p in the corresponding period of 2016, while the interim dividend has been hiked 8% to 2.65p from 2.45p.
The group said the recent acquisition of Variohm is performing well, with strong sales and order growth, while the group is working on further acquisition opportunities.
"This is a strong set of results,” declared Nick Jefferies, the group’s chief executive.
“Sales increased by 21%, of which 9% was widespread organic growth across the group, and underlying earnings per share increased by 24%,” Jefferies continued.
READ: Acal well placed to produce significant long-term growth
“Since 2011, we have been building a Design and Manufacturing business that would transform the group into a higher margin business. D&M now accounts for 78% of group underlying profit contribution and to reflect this and, more importantly, our further ambitions, we are announcing today that the company is changing its name to discoverIE Group PLC (LON:DSCV), recognising how we help our customers to 'discover innovative electronics',” Jefferies revealed.
The name change applies at the group level; at the operating level, the group's business names remain unchanged.
“We have many growth opportunities ahead of us as we drive towards our stated targets, and our ambition remains to repeat the performance of the last five years by doubling revenue and underlying earnings per share through a combination of organic growth and value-enhancing acquisitions," Jefferies said.
Broker Peel Hunt, which counts DiscoverIE as a corporate client, described the trading update as “excellent” and said there is plenty of momentum heading into the second half of the financial year.
“The group has also changed its name to discoverIE Group PLC, which we see as a natural, positive move that reflects the evolution of the business from distributor to designer and manufacturer,” Peel Hunt noted.
DiscoverIE stands for “Discover innovative electronics” and follows on from the recent FTSE reclassification of the stock to the Electronics and Electrical Equipment sector.
Adjusted profit before tax of £10.4mln was a shade above Peel Hunt’s forecast of £10.3mln.
The broker left its full-year forecasts unchanged, following upgrades in April and October, but said there is a chance that it would be revising them upwards again before the financial year is done.
“Net debt at 30 September was £37.6mln, down £3.5mln YoY [year-on-year], which equates to 1.3x pro forma EBITDA [underlying earnings] and leaves plenty of firepower for further bolt on acquisitions, the pipeline for which we understand is looking healthy. Absent any deals, we’re forecasting net debt to reduce to c£27mln by the end of the year,” Peel Hunt, as it reiterated its ‘buy’ recommendation.
“On a PER [price/earnings ratio] of 14.5x Mar18e [forecast earnings for year to March 2018] and a dividend yield of 2.8% we think the shares are significantly undervalued,” the broker said.
Shares in the company rose 2p to 320.25p on the results; Peel Hunt thinks they could hit 360p in the next 12 months.
The price target is even punchier at finnCap, which reckons the shares are worth 405p – up from its previous target price of 339p.
Even at that valuation, the stock trades on a 15% discount to its peers, despite the prospect of faster growth, finnCap noted.
The stock is currently trading at a 37% discount to its peers, but finnCap expects this discount to narrow.
“The outlook is positive, evidenced by a record order book (+16% at CER [constant exchange rates]), and investment has consequently been made into working capital. Of particular note is a 30% increase in new project design wins, providing an expanding base from which to drive continued growth,” finnCap’s Guy Hewlett said.