Investment bank Berenberg has reiterated its 'buy' recommendation and 1,030p price target for shares in electronics specialist discoverIE Group PLC (LSE:DSCV) following the company's acquisition of Magnasphere Corporation.
Magnasphere is a US-based designer and manufacturer of magnetic sensors and switches for industrial electronic applications, including access control, data centres, and specialist vehicles.
The acquisition is the 21st Design & Manufacturing (D&M) acquisition for discoverIE since 2010 and marks a return to the acquisition trail following a low-activity 2022.
Berenberg analysts believe that the acquisition is a margin-enhancing business, as management has previously stated its intention to only acquire businesses that will increase margins.
They have made no changes to their full-year 2023 (FY23) estimates for discoverIE, assuming that the deal will be completed by the end of the year, but have increased their FY24 revenue forecasts by £6.4mln and adjusted operating profit by £1.8mln.
The £19.1mln acquisition consideration will be funded through existing debt facilities, and the Berenberg analysts introduced an additional £1mln of interest charges in relation to this.
Overall, they said they expect approximately 2% adjusted earnings per share accretion for FY24 and FY25, with FY24 leverage of 0.6 times remaining below management's target range of 1.5-2.0 times.
On the Berenberg analysts' new forecasts, discoverIE trades on an FY24 price-to-earnings ratio of 21.9 times, which they view as attractive given the company's longer-term growth prospects.
In addition to further deployment of the balance sheet into accretive M&A, the Berenberg analysts also sees upside risk to organic forecasts when considering discoverIE's previous outperformance of medium-term targets.