Shares in discoverIE Group PLC (LSE:DSCV) were higher in early afternoon trading after the custom electronics group said it remained "on track" to deliver full-year results in line with previous expectations.
It also said its sales performance improved in the past quarter and cash generation continued to be strong.
Reacting to the third-quarter update, Peel Hunt said: "Strong gross margin and tight cost controls are testament to continued strong execution."
The broker repeated its 'buy' recommendation and 1,000p price target - a 56% premium to the current price of 647p (up 1.7% on the day).
Improving sales
In the trading statement, discoverIE said sales in the three months to December 31 were flat year-on-year at constant exchange rates, having been down 4% in the first half.
This reflected a further recovery in organic sales, which were down 3% compared to the 7% decline in the second quarter and 12% in the first.
The recovery was led by the Sensing & Connectivity arm, which returned to organic sales growth in the quarter, while Magnetics & Controls improved in the first half but remained negative.
"With an excellent pipeline of organic and inorganic opportunities and strong cashflow, the Group is well positioned to deliver sustained growth as markets recover," discoverIE said.
Margins robust
Gross profit margins were said to have "continued to be robust" as the group kept tight control of operating costs and working capital.
The order book, which ended the first half at £163 million, increased by 4%, with the book-to-bill ratio increasing to 1.01 from 0.98, even if orders were down 6% on an organic basis against a strong quarter a year ago.
Post-period end, discoverIE acquired sensor specialist Burster for an initial €30.6 million (£25.9 million) cash, funded from existing debt facilities, plus an earn-out of up to €12.4 million (£10.5 million).
This deal is expected to increase gearing by March 31 from 1.25x to 1.6x. "Debt forecasts are well within the target range, leaving scope for more deals," said Peel Hunt in a note to clients.