discoverIE Group PLC raises expectations again

DiscoverIE Group PLC () expects earnings for the fiscal year just ended to be at the upper end of market expectations.

The designer, manufacturer and supplier of customised electronics for use by industry said trading momentum continued to strengthen in February and March.

Group orders increased by 17{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} organically year-on-year (YOY) in the two months with double-digit percentage growth in both divisions, representing an acceleration from 10{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} organic growth in the preceding four months, resulting in 12{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} organic growth for the second half of the company’s fiscal year.

Orders in the second half were 40{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} ahead of the first half with a book to bill ratio of 1.19:1. Overall, group orders were 2{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} lower organically for the full year, discoverIE said in a full-year trading update.

Group sales in the second half were 9{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} ahead of the first half with a return to organic growth of 1{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} in the last two months of the year. Organically, second-half sales were 3{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} lower YOY. As a result, group sales for the full year were 3{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} lower than the year before, and organically 6{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} lower.

The Design & Manufacturing (D&M) division’s full-year sales were down 4{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} on the previous year while the Custom Supply division’s sales were off 8{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}.

The group said it remains well funded with good liquidity. Cash generation continued to be strong with gearing at the financial year-end reducing to 1.2x annual underlying earnings.

The group targets a gearing ratio of 1.5 – to 2.0, so “there is significant headroom for further acquisitions”, discoverIE said, adding that the acquisitions pipeline remains healthy.

“The strong order book and momentum provide a solid base for sustained organic sales growth whilst further investing in growth initiatives. With a clear strategy focused on long-term high-quality growth markets, a strong funnel of design wins and acquisition targets, the group is well-positioned to make further progress in the year ahead, in line with its key strategic indicators,” the group concluded.

Peel Hunt responded to the update by increasing its price target to 835p from 775p and reiterating its ‘buy’ recommendation.

“We upgrade our FY21E adjusted PBT [profit before tax] 8{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to £29.6mln (EPS 24.5p), and with the order book strength running into next year with good-quality, long-term orders (plus a slightly lower-than-expected interest charge), our FY22E adjusted PBT also increases 8{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to £32.3mln (EPS 26.7p). This is a very promising end to FY21E, which gives us further confidence in the recovery and beyond – both from an organic growth perspective and also for the acquisition strategy,” the broker said.

Shares in DiscoverIE were up 8.5{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} at 807p in afternoon trading.

— adds broker comment and updates share price reaction —