RE: Finncap raise target price to 125p today3 Dec 2020 12:40
Finncap have issued a 12 page note on the acquisition, with as stated an increased 125p target price - here's just the summary:
"Acquisition in lockdown –14% accretive in first full year
SDI has announced the acquisition of Monmouth Scientific, paying c.£5.8m for the business(including a £2.1m earn-out based on FY 2021E adjusted EBIT). Monmouth manufactures biological safety cabinets, amongst other air flow products, which are seeing strong demand due to the dynamicgrowth in PCR testing capacity for COVID-19. The acquisition is funded from cash and SDI’s existing debt facility,with net debt at year-end now expected to be c.£4.3m.
We expect the acquisition to be immediately EPS enhancing (6%) and to be c.14% accretive to EPS in FY 2022. We raise our target price by 14% to 125p to reflect the accretion and rolling forward the multiples to FY 2022, which would imply the stock trading onFY 2022P/E of 26.7x, EV/EBIT of 20.8x and EV/EBITDA of16.6x.
?The acquisition.
Monmouth Scientific is a manufacturer of biological safety cabinets, fume cupboards, laminar flow cabinets and cleanrooms for end-markets including Laboratory, Pharmaceutical and Industrial Analytical Research,as well as Industrial, Electronics, Medical and Education establishments. Based in the UK, Monmouth had FY 2020 revenues of £6.2m, 20% of which were exported, with adjusted EBIT of c.£0.4m.It is currently benefiting from a surge in demand for its biological safety cabinets, which are typically used to house PCR instruments – the backbone of COVID-19 testing. The company expects this to continue for the rest of its financial year,resulting in c.37% FY revenue growth (c.£8.5m) andthe reason for an earn-out.
?Consideration.
SDI is paying c.£5.8m to acquire Monmouth Scientific, which implies 0.7x and 3.6x prospectiveFY 2021sales and EBIT,respectively. The acquisition is funded from cash and existing debt facilities, with year-end net debt of c.£4.3m expected. Included in this price is a post-completion payment for net current assets of no more than £1.6m, of which c.£0.6m is expected to be cash in the business.
?Strategic rationale.
The acquisition is in line with the Group’s strategy of acquiring businesses with complementary technology products. Monmouth’s quality is reflected in its customer list, which includes some of the UK’s leading private and government organisations, such as Mercedes F1, BAE Systems, the MoD and the NHS.
?Forecasts.
We forecast Monmouth Scientific to contribute £3.5m and £0.3m to FY 2021 revenue and adjusted EBIT, respectively, rising to £7.0m and £0.8m in FY 2022. We expect Monmouth Scientific to be 6% accretive to adjusted fully diluted EPS in the current year and 14% in FY 2022.
?Valuation.
We raise our target price by 14% to 125p (from 110p), reflecting the accretion to earnings, rolling forward the target multiples to FY 2022 and taking into consideration its peer group (eg. Judges Scientific) multiples."
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