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discoverIE Group PLC: DEEP DIVE
OVERVIEW

discoverIE steams ahead as it ends latest full year with record order book

The firm reported an underlying pre-tax profit for the year ended 31 March of £27.2mln, 24% higher than the year before, while revenues climbed 13% to £438.9mln
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OVERVIEW: DSCV The Big Picture
The company said several acquisition opportunities are developing
  • Designs, manufactures and supplies innovative components for electronics applications

  • Key markets in renewable energy, transportation, medical and industrial connectivity

  • Full-year underlying pre-tax profits up 24%

  • Record order book of £139mln

 

What discoverIE does:

discoverIE Group PLC (LON:DSCV) designs, manufactures and supplies highly differentiated, innovative components for electronics applications.

The group – which changed its name from Acal in 2017 - provides application-specific components to original equipment manufacturers (OEMs) internationally using its in-house engineering capability.

It focuses on key markets which are driven by structural growth and increasing electronic content, namely renewable energy, transportation, medical and industrial connectivity.

It employs around 4,000 people and its principal operating units are located in Continental Europe, the UK, China, Sri Lanka, India and North America.

How’s it doing:

In its results in June, the company upped its final dividend following a strong uplift in full year profits.

The firm reported an underlying pre-tax profit for the year ended 31 March of £27.2mln, 24% higher than the year before, while revenues climbed 13% to £438.9mln.

Organic sales and orders grew by 8% during the year, with cross-selling revenues up 20% at £10.6mln.

Underlying operating margins also increased to 7% from 6.3% in the prior year, with the group’s design & manufacturing division now accounting for 61% of sales, compared to 57% in the prior year, following a 10% uplift in sales from the segment.

As a result of the improved performance, the final dividend was hiked by 6% to 6.75p per share, taking the full year payout to 9.55p.

Looking ahead, the company said it had ended the year with a record order book of £139mln and that trading in its current financial year had “started well” with several acquisition opportunities developing.

Nick Jefferies, discoverIE’s chief executive, added that the group was “well positioned” to progress and over the last eight months had made three “high quality, higher margin” acquisitions to help grow its business.

What the brokers say

In a note on 20 June, analysts at Berenberg said discoverIE had some of the “most attractive” growth prospects in the UK industrials sector.

The German bank said the company’s full-year results had shown its Design & Manufacturing (D&M) division had accounted for 61% of revenues and expected the division to further grow to management’s target of 75% in the medium-term, which would push operating margins up toward 11% from 7% in the year.

They added that given D&Ms relatively small position in a large and highly fragmented market, there was “plenty of scope” for growth both organically and through acquisitions.

The firm’s focus on its target markets of renewable energy, transportation, and medical and industrial connectivity was also “appealing” given the present uncertainty in the macro industrial environment as each of the sectors had long-term structural demand for electronics.

Looking ahead, Berenberg forecast that discoverIE would have around £30mln of acquisition firepower in the near term, which if deployed in similar terms to previous purchases could lift earnings by 10%.

They added that the company’s smaller size relative to competitors such as FTSE 100 Halma PLC (LON:HLMA) and FTSE 250 Diploma PLC (LON:DPLM) meant it was easier to find family-run businesses whose owners would be willing to sell at a reasonable price.

Berenberg currently has discoverIE pegged with a ‘buy’ rating and a target price of 520p, a 22.6% premium to the share’s close price on 19 June.

With the shares trading at around 417p as of 20 June, discoverE has a market cap of £342mln.

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