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 for the 12 months ended March 31, 2020, sales increased by 8% year-on-year, meaning earnings will be slightly ahead of the company’s revised expectations following a strong recovery in China.
The order book, meanwhile, was up 7% at a record £159mln, though sales to date for the first quarter are currently 10% lower on an organic basis compared with last year. This is partly the result of brief shutdowns of facilities in Sri Lanka, India and the US.
Operationally, the business adapted quickly after the global lockdown with the electronics designer, manufacturer and distributor reporting that its supply chain had remained resilient throughout the international crisis.
Turning to the balance sheet, discoverIE said it has £120mln of undrawn borrowings, while its gearing of 1.3-times earnings and interest cover of 12-times were “comfortably within the limits required under our facility agreements”.
Looking ahead, the group said customer demand remained “relatively resilient”. It has a strong order book and its core markets “should help to reduce the ongoing impact from COVID-19”.
It added: “The duration and breadth of the market disruption arising from this situation remain unclear and therefore we do not believe it is appropriate to provide financial guidance for the current year at this early stage.
“Nevertheless, we are encouraged by the continued demand for our differentiated products and the response by our businesses which has enabled us to continue to operate effectively.”
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.