discoverIE Group PLC (LON:DSCV) has some of the “most attractive” growth prospects in the UK industrials sector according to analysts at Berenberg, who on Thursday hiked their target price for the group to 520p from 490p.
The German bank's analysts said the custom electronics maker’s last set of full-year results showed its Design & Manufacturing (D&M) division had accounted for 61% of revenues and they expect the division to further grow to management’s target of 75% in the medium-term, which will push operating margins up towards 11% from 7%.
The analysts addeed that given the D&M unit's relatively small position in a large and highly fragmented market, there was “plenty of scope” for the segment to grow both organically and through acquisitions.
They also said that the firm’s focus on its target markets of renewable energy, transportation, and medical and industrial connectivity was “appealing” given the present uncertainty in the macro industrial environment as each of the sectors had long-term structural demand for electronics.
Looking ahead, the analysts 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 listed Halma PLC (LON:HLMA) and FTSE 250 component 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's analysts also reiterated its ‘buy’ rating on the stock, saying the opportunity presented by the company was currently “underappreciated”.
In mid-morning trading on Thursday, discoverIE’s shares were steady at 424p.