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discoverIE looks to profit from global trends

Demand for its essential industrial parts has held up well in the last year.
November 23, 2022
  • Peel Hunt increases forecasted profits
  • Dividend increased again

discoverIE (DSCV) makes niche electrical parts for renewable energy, medical care, electrification of transport and industrial automation equipment. The business is well positioned to exploit secular trends. As the energy transition accelerates and the global population ages, demand for electric cars and medical equipment will increase.

The business is not just about the future. In the short-term, things have been going well. Group sales increased 23 per cent on an underlying basis and underlying operating profit increased 37 per cent. Margin expansion despite inflationary headwinds is impressive. Its niche electricals need to be assembled manually which means energy costs only make up 1 per cent of revenue.

A record order book of £257mn provides visibility on sales. However, management will be hoping to turn more of its profits into cash in the next 12 months. Cash conversion was just 72 per cent because of a £6mn increase in inventory to secure supplies. Chief executive Nick Jefferies said it was a specific type of steel they were short on but this was easing and cash conversion would return to its 85 per cent target.

House broker Peel Hunt is pleased and has bumped up its revenue and profit expectations for 2024. The new numbers have discoverIE trading on a 2024 PE of 25.1. This is expensive but justified by the improving profit margins and exposure to long-term global macro trends.

Meanwhile, reshoring of industrial manufacturing closer to home is driving more sales, according to Jefferies. discoverIE has positioned itself well to profit tomorrow but judging by the price, the market realises that, too. Hold.

Last IC View: Hold, 709p, 14 Jun 2022

DISCOVERIE (DSCV)   
ORD PRICE:912pMARKET VALUE:£879mn
TOUCH:911-913p12-MONTH HIGH:1,084pLOW: 586p
DIVIDEND YIELD:1.2%PE RATIO:50
NET ASSET VALUE:325p*NET DEBT:24%
Half-year to 30 SeptTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20211746.403.303.35
202222014.811.23.55
% change+26+131+239+6
Ex-div:15 Dec   
Payment:13 Jan   
*Includes intangible assets of £280mn or 291p a share.