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discoverIE senses more acquisitions

The group is reacting to uncertainty in China
June 4, 2019

discoverIE (DSCV) is interested in making further acquisitive forays into the sensing technology market, chief executive Nick Jefferies says, following its £4.2m April deal for Positek, a developer of customised rugged, high-accuracy sensors.

IC TIP: Buy at 424p

The electronics group funded the £16m acquisition of two businesses in April through an equity placing that raised a net £28m. “We’re particularly keen on the sensing area,” Mr Jefferies says, adding that the company will target the US and Europe in this space. Hobart, its other April acquisition, makes custom transformers for energy infrastructure.

While the likes of photonics manufacturer Gooch & Housego (GHH) have suffered from a cyclical downturn and the Sino-US trade war, discoverIE is resilient in the face of unpredictable macroeconomic trends, according to the chief executive. It has sales of £30m into the US, only £4m of which are produced in China. Its factories aren’t hugely integrated, which makes it easier to move most of this production to India. All tariffs are passed onto customers. “Now that they are seeing that the tariffs [on] China are likely to be longer term, they are more open to us moving production to India,” Mr Jefferies says.

During the year, discoverIE uncovered a fraud at one of its US subsidiaries. Of the total fraud cost of £4m, £2.6m has been recovered this year from insurance after the excess deductible, offset by £1.5m in costs. An exceptional income of £1.1m has been recognised.

Prior to these results, house broker Peel Hunt expects adjusted pre-tax profit of  £31.2m and EPS of 28.5p for the March 2020 year-end, rising to £32.8m and 29.9p in FY2021.

DISCOVERIE (DSCV)   
ORD PRICE:424pMARKET VALUE:£342m
TOUCH:424-434p12-MONTH HIGH:455pLOW: 324p
DIVIDEND YIELD:2.3%PE RATIO:21
NET ASSET VALUE:167p*NET DEBT:47%
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20152714.35.07.60
20162889.411.48.05
20173384.85.38.50
2018**38814.615.09.00
201943919.320.09.55
% change+13+32+33+6
Ex-div:13 Jun   
Payment:30 Jul   
*Includes intangible assets of £119.7m, or 148p a share **Restated to reflect fraud costs recovered from insurance