Acal Expands Product Range

Acal has made further progress in its growth strategy with the acquisition of Young Electronics Group for £1.7m, adding new and complementary products to the Electronics division line-up. We make no changes to earnings estimates, but reflect the purchase price and estimated integration and acquisition costs in our net cash/debt forecasts.

Continuing on the acquisition path
Acal has acquired the trade and assets of Young Electronics Group (YEG) for cash (pre-expenses) of £1.7m. YEG has operations in the UK and Ireland, acting as a specialist provider of electronic components, solutions and services including solid state lighting and related components, electronic components, power supplies, power cords and custom cable assembly. The business has internal manufacturing capacity used to make own label products and also to offer electronics manufacturing services to customers. For Acal, this brings a new product line – solid state lighting – and other complementary product lines that will be suitable for cross-selling.

Funded from existing facilities
The company has not disclosed historical revenues for YEG, although notes that the business made a small loss in CY12. Acal plans to integrate YEG by the end of FY14; we would expect cost synergies from integrating back office functions. Until details are available regarding revenues and profitability, we make no changes to our P&L forecasts; we reduce our net cash forecast to reflect the cash acquisition cost plus our estimate of acquisition and integration costs (total £2.5m cash outflow). Net cash at the end of FY14 reduces from £1.5m to a net debt position of £1m, and net cash at the end of FY15 reduces to £0.1m.

Valuation: Growing market share to drive margins
Positive PMI data over the past few months (eurozone manufacturing PMI hitting 51 in August, with the UK at 57 and above 50 since April) have helped drive Acal’s share price up by 15% since the end of June. The stock now trades on a P/E of 12.6x FY14 and 11.7x FY15, but remains at a small discount to its peer group. Bookings activity is showing positive momentum and the level of design activity over the past two years positions the company well for volume orders as the economy recovers across Europe.

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