discoverIE Group PLC's (LSE:DSCV) twin updates on Wednesday impressed analysts, with 18% order growth and 17% revenue growth in the past four months, with the group also announcing an operational reshuffle.
The growth "shows the group's capabilities" amid the ongoing supply-chain headwinds, said Liberum with the sales growth representing an increased pace versus the 14% in the prior quarter to end-September, with organic revenue growth also picking up on a two-year basis.
On the separation of the continuing D&M business, Liberum analysts said: "We highlight that by combining a well-considered growth organic growth strategy with one of the most active acquisition agendas in the sector, discoverIE has more than doubled the revenues of its D&M business over the past five years (FY16-FY21).
"Moreover, we believe management have proven to be highly capable consolidators and are encouraged that both the headroom and appetite for further M&A remains, with pro-forma gearing at 0.9x ND/EBITDA. The group's record £216m order book (+65% y/y) should further underpin confidence."
Over at Shore Capital, analysts said they anticipate an upgrade of circa 4% to revenue and earnings consensus forecasts for the full year and around 2% upgrades to outer year forecasts.
Shorecap now expects to forecast circa £375mln revenue for the 2022 financial year, with adjusted operating profit of £38.8mln.
"Although we do not expect to upgrade our margin assumptions materially at this stage, we note that discoverIE has been more successful than most peers at passing on increased costs to customers and operational leverage, along with M&A, could drive future an operating margin expansion, closer to management’s FY25F target of 13.5%."
Shorecap said discoverIE shares trades on 31 new forecast earnings per share, falling to circa 28 times for next year, with a 1.3% dividend yield.
"We continue to believe that, under a bullish scenario, the company can achieve 50p EPS by FY25F if it meets its target for that year and continues to make value accretive acquisitions, which we believe it can self-fund. If the stock can maintain a >25x PER rating, the share price could exceed 1,250p, which would make the shares worth >980p in today’s money."
The broker added that the current rating represents a sizeable premium to peers "and we acknowledge the risk of the shares continuing to derate, having fallen 18% YTD and 32% since September, due to a sell-off in the electronics sub-sector".
Shorecap said it expects to maintain a 'hold' recommendation.
"In our view, discoverIE is better placed than most Industrials peers at passing on increased costs to customers, given its customised solutions and the fact that its products are a relatively small portion of customers' budgets. The company is well placed to benefit from a range of long-term trends, in our view, including increased electrification in industrial applications (driven by increased automation and carbon emission reduction targets) and rail transportation, increased investment in renewable energy and an increase in AI and sensing in the medical sector. We believe these trends have accelerated significantly since the start of the COVID-19 pandemic. However, we believe the current share price captures these factors."