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discoverIE surges as it hikes interim dividend amid first half profits rise

The customised electronics maker reported an underlying pre-tax profit of £12.9mln, up 24% on the same period a year ago, while revenues climbed 12% to £211.7mln
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The custom electronics maker added that it had a “record breaking” period end order book of £131mln

discoverIE Group PLC (LON:DSCV) shares surged in mid-morning Tuesday after it hiked its interim dividend amid a rise in profits of almost 25% for the first half.

The customised electronics maker reported an underlying pre-tax profit of £12.9mln, up 24% on the same period a year ago, while revenues climbed 12% at constant exchange rates to £211.7mln.

READ: DiscoverIE rises again on further reflection on yesterday's acquisition

The company’s underlying operating margins also expanded in the period to 6.8% from 6.2%, while cross-selling had grown 17% compared to last year to £4.9mln.

As a result, the group hiked its interim dividend 6% to 2.8p per share.

Nick Jefferies, discoverIE’s chief executive, said that the group’s stronger first half performance had been driven by widespread organic sales growth, with the company’s Design & Manufacturing and Custom Supply businesses growing by 10% and 2% respectively.

The growth in D&M was down to a focus on “higher growth markets” Jefferies said, with Custom Supply seeing “improved profitability” and a return to growth in the UK.

The D&M business also now accounted for 60% of group sales, up from 57% in the first half of last year, while contract design wins had risen 40% year-on-year (YOY) with 80% of these in target markets.

Looking ahead, the group said it had a “record breaking” period end order book of £131mln, up 18% YOY at constant exchange rates.

Jefferies said trading in the second half had “started well with further strong growth” and the company was on track to deliver earning in line with expectations.

READ: discoverIE Group makes bolt-on acquisition

He added that with the acquisition of human-to-machine interface products maker Cursor Controls after period-end, the company was “well positioned for continued growth” with further acquisition opportunities developing.

discoverIE purchased Cursor Controls for £19mln in cash upfront at the start of October, in a move that was expected to provide an immediate boost to the company’s underlying earnings and underlying operating margin.

Results demonstrate success of strategy, says broker

In a note to clients, analysts at City broker Peel Hunt retained their ‘Buy’ rating on the stock with a 500p price target, saying that the results demonstrated the success of the firm’s strategy as progress was made across all of its key performance indicators (KPIs).

“The growth in new design wins and order book (+18% underlying) give us confidence in the strength of the end markets” the broker said, adding that they also expected a boost from inorganic growth.

“Importantly, we are seeing the momentum continue into H2, driven in particular by the strategic focus on the four target markets of Renewable Energy, Transportation, Medical and Industrial Connectivity”.

For the full fiscal year, Peel Hunt is estimating an EBITDA of £34.7mln, up from £29.4mln last year, and a dividend yield of 2.8% compared to 2.6% last year eventually rising to 3.1% by the end of 2021.

In mid-morning trading Tuesday, discoverIE shares were up 4.9% at 363p, a 27% discount to Peel Hunt's target price.

The company has a market cap of around £254mln.

--Adds broker comment and share price--

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