Acal — Update 14 January 2016

Acal — Update 14 January 2016

Acal

Katherine Thompson

Written by

Katherine Thompson

Director

Acal

High-margin UK custom cabling acquisition

Acquisition

Industrial support services

15 January 2016

Price

277.5p

Market cap

£178m

€1.33/NOK12.8/DKK9.9/£1

Net debt (£m) at end H116

21.9

Shares in issue

64.2m

Free float

99%

Code

ACL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.1

3.2

9.0

Rel (local)

(0.1)

8.6

15.2

52-week high/low

325.8p

242.0p

Business description

Acal is a leading international supplier of customised electronics to industry. It designs, manufactures and distributes customer-specific electronic products and solutions to 25,000 industrial manufacturers.

Next event

IMS

February 2016

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Acal is a research client of Edison Investment Research Limited

Acal has boosted its Design & Manufacturing (D&M) business with the acquisition of Contour Electronics for an initial consideration of £17m. The UK-based custom cabling and connector business is forecast to grow revenues, further boosting D&M’s profitability. In addition, there is potential upside from cross-selling to Acal’s international customer base.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

211.6

6.9

13.1

6.80

21.2

2.5

03/15

271.1

12.4

16.4

7.60

16.9

2.7

03/16e

294.9

14.5

16.5

7.98

16.8

2.9

03/17e

317.9

16.7

18.4

8.30

15.1

3.0

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

Acquisition of Contour Electronics

Acal has acquired Contour Electronics, a UK-based designer and manufacturer of custom cabling and connector products. Contour has a manufacturing facility in the UK for low-volume production and outsources higher volumes to Asian partners. The acquisition doubles Acal’s revenues in this area. The company has paid cash of £14m and issued shares worth £3m. Further consideration of £1m is payable in April 2019 (subject to certain conditions) and additional contingent consideration of up to £6m is payable after July 2019 if the business hits its own strong growth targets. In the year to 30 June 2015, Contour generated revenues of £10.7m and PBT of £1.1m (or £1.8m adjusted for exceptional and shareholder payments, equivalent to a 16.8% margin). Based on initial consideration, this values this growth business on a trailing P/E of c 11.8x.

Growth business with strong margins

According to management, Contour has exhibited good growth over a number of years and is targeting continued growth. We estimate that with Contour’s contribution the ongoing mix of revenues between Custom Distribution and D&M will be roughly equal. We raise our FY16 revenue forecast by 0.9%, operating profit by 2.7% and EPS by 0.6%. For FY17, we lift revenues by 3.6% and the impact of Contour’s higher margin business (we estimate c 17% operating margins) drives operating profit up by 10.4% and EPS by 3.7%. Our net debt forecast increases to £40.4m by the end of FY16 and £39.6m by the end of FY17 (equivalent to net debt/EBITDA of 1.7x), leaving some £20m headroom for further acquisitions.

Valuation: Growth of D&M drives upside

The stock is trading on a P/E of 16.8x FY16e and 15.1x FY17e, in line with its peer group. The company continues to make good progress in its strategy to move up the value chain and in the medium term, as Acal grows the proportion of revenue generated from D&M, we expect to see further operating margin expansion. In addition to the wider geographic coverage and cross-selling potential of recent acquisitions, we see scope for further share price upside from additional value-enhancing acquisitions. The stock is supported by a dividend yield of c 3%.

Exhibit 1: Financial summary

£m

2011

2012

2013

2014

2015

2016e

2017e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

264.8

257.8

177.4

211.6

271.1

294.9

317.9

Cost of Sales

(189.6)

(179.9)

(123.0)

(148.6)

(186.7)

(201.8)

(217.5)

Gross Profit

75.2

77.9

54.4

63.0

84.4

93.2

100.5

EBITDA

 

 

9.1

10.2

7.4

9.1

16.6

19.6

22.8

Operating Profit (before am, SBP and except.)

7.7

8.7

6.1

7.7

14.0

16.7

19.9

Operating Profit (before am. and except.)

 

7.4

8.1

5.5

7.1

13.4

15.9

19.1

Amortisation of acquired intangibles

(0.3)

(0.8)

(0.7)

(1.0)

(2.1)

(2.6)

(2.6)

Exceptionals

(4.6)

(3.4)

(3.4)

(0.9)

(5.2)

(2.3)

(2.2)

Share-based payments

(0.3)

(0.6)

(0.6)

(0.6)

(0.6)

(0.8)

(0.8)

Operating Profit

2.5

3.9

1.4

5.2

6.1

11.0

14.3

Net Interest

(0.3)

(0.9)

(0.5)

(0.8)

(1.6)

(2.2)

(3.2)

Profit Before Tax (norm)

 

 

7.4

7.8

5.6

6.9

12.4

14.5

16.7

Profit Before Tax (FRS 3)

 

 

1.9

2.7

0.7

4.2

4.3

8.5

10.8

Tax

(0.2)

(0.6)

1.4

(0.5)

(1.4)

(2.1)

(2.8)

Profit After Tax (norm)

5.8

6.4

4.6

6.0

10.0

11.2

12.7

Profit After Tax (FRS 3)

1.7

2.1

2.1

3.7

2.9

6.4

8.0

Average Number of Shares Outstanding (m)

39.1

39.2

39.2

43.1

57.6

63.3

64.1

EPS - normalised & diluted (p)

 

 

14.2

15.7

11.3

13.1

16.4

16.5

18.4

EPS - IFRS basic (p)

 

 

4.3

5.4

(4.8)

3.0

5.0

10.1

12.5

EPS - IFRS diluted (p)

 

 

4.2

5.1

(4.7)

2.8

4.8

9.5

11.6

Dividend per share (p)

5.4

5.8

6.2

6.8

7.6

8.0

8.3

Gross Margin (%)

28.4

30.2

30.7

29.8

31.1

31.6

31.6

EBITDA Margin (%)

3.4

4.0

4.2

4.3

6.1

6.7

7.2

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

2.9

3.4

3.4

3.6

5.2

5.7

6.3

BALANCE SHEET

Fixed Assets

 

 

27.7

32.5

30.9

33.1

88.6

107.8

105.6

Intangible Assets

21.1

25.7

24.2

25.5

69.9

88.8

86.2

Tangible Assets

3.8

3.5

3.1

3.5

13.8

14.1

14.5

Deferred tax assets

2.8

3.3

3.6

4.1

4.9

4.9

4.9

Current Assets

 

 

98.3

86.8

81.8

92.7

127.3

115.0

124.2

Stocks

25.3

25.7

19.3

19.4

39.8

43.6

47.0

Debtors

59.3

48.8

44.7

48.3

60.2

65.5

70.5

Cash

13.6

12.3

17.8

18.1

26.7

5.3

6.1

Current Liabilities

 

 

(63.9)

(58.8)

(50.9)

(58.3)

(62.1)

(72.7)

(83.1)

Creditors

(58.8)

(53.6)

(46.6)

(51.5)

(61.9)

(67.5)

(72.9)

Short term borrowings

(5.1)

(5.2)

(4.3)

(6.8)

(0.2)

(5.2)

(10.2)

Long Term Liabilities

 

 

(10.8)

(11.4)

(10.3)

(19.0)

(61.1)

(57.1)

(52.1)

Long term borrowings

(1.8)

(0.8)

(1.7)

(9.5)

(45.5)

(40.5)

(35.5)

Other long term liabilities

(9.0)

(10.6)

(8.6)

(9.5)

(15.6)

(16.6)

(16.6)

Net Assets

 

 

51.3

49.1

51.5

48.5

92.7

93.0

94.6

CASH FLOW

Operating Cash Flow

 

 

0.5

9.1

5.7

6.1

6.6

13.0

18.0

Net Interest

(0.3)

(0.9)

(0.6)

(0.8)

(1.6)

(2.2)

(3.2)

Tax

0.5

(1.1)

(1.4)

(0.9)

(3.3)

(3.9)

(4.5)

Capex

(1.3)

(1.4)

(1.3)

(1.4)

(2.5)

(3.0)

(3.3)

Acquisitions/disposals

(4.4)

(3.9)

(0.5)

(9.2)

(37.3)

(20.4)

(1.2)

Financing

0.0

0.3

5.7

0.1

52.7

0.0

0.0

Dividends

(2.0)

(2.2)

(2.3)

(2.7)

(3.6)

(4.9)

(5.1)

Net Cash Flow

(7.0)

(0.1)

5.3

(8.8)

11.0

(21.4)

0.7

Opening net cash/(debt)

 

 

13.9

6.7

6.3

11.8

1.8

(19.0)

(40.4)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.2)

(0.3)

0.2

(1.2)

(31.8)

0.0

0.0

Closing net cash/(debt)

 

 

6.7

6.3

11.8

1.8

(19.0)

(40.4)

(39.6)

Source: Acal, Edison Investment Research

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Germany

London +44 (0)20 3077 5700

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New York +1 646 653 7026

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Paysafe Group — Update 13 January 2016

Paysafe Group

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