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discoverIE steams ahead as sales expand

Snapshot

  • Makes and supplies innovative components for electronics
  • Key markets in renewables, transportation, medical and industry
  • Company is on track to meet full-year expectations
  • Order book at the end of September rose to £153mln
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Quick facts: discoverIE Group PLC

Price: 550 GBX

LSE:DSCV
Market: LSE
Market Cap: £492.01 m
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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 it's doing

In a trading update covering the final three months of 2019 – the third quarter of the group’s financial year – the group said sales were up by 6% year-on-year on a constant exchange rates (CER) basis and 3% on a reported basis. Growth in orders was ahead of sales growth.

Year-to-date, group sales are up 8% on a CER basis and by 7% on a reported basis, with like-for-like sales up 3%, driven by a strong performance from the Design & Manufacturing (D&M) division.

D&M saw its sales increase by 16% year-on-year on a CER basis, representing organic growth of 7%, in line with that seen in the first half of the financial year.

Growth was driven by sales in the renewable energy and medical sectors. D&M orders were in line with sales.

The Custom Supply (CS) division experienced a bit of a hiccup in December with some short-term customer destocking, particularly in general industrial markets in Germany and the UK, which resulted in third-quarter sales being down by 10% organically.

Orders were ahead of sales in the period, however, with a book to bill ratio of 1.06, and January sales and orders have returned to the higher levels achieved in the first half of the year, discoverIE said.

The group noted that its order book at the end of 2019 was up 5% (CER) year-on-year, with more than 80% of those orders for delivery in the next 12 months. Its gross margin in the third quarter improved by one percentage point from a year earlier.

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What the brokers say

In a note in December initiating the firm with a 'buy' rating and 615p target price, analysts at Panmure Gordon said the customised electronics firm went from a distributor of electronic components to an international designer, manufacturer and supplier thanks to a strategy of acquisitions, with £300mln invested since 2011 and chances for more to come.

Another strong point, according to the Panmure Gordon analysts, is the focus on growing markets and structural shifts such as decarbonisation, which has been driving electrification.

They forecast that these markets are expected to increase annual organic growth by 4% this year and by 3% thereafter.

“We expect design & manufacturing to continue to drive growth and with management's objective to self-fund acquisitions longer term, we expect future acquisitions to become increasingly earnings accretive,” the analysts said in a note to clients..

“As current consensus excludes any future acquisitions, we believe there is significant opportunity for upgrades over the medium term,” they concluded.

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