Last close As at 05/08/2026
GBP8.23
▲ 24.00 (3.00%)
Market capitalisation
GBP802m
Research: TMT
discoverIE’s Q324 trading update confirmed a return to organic order growth, while the decline in organic revenue reflected the expected unwind of customer inventory. The company notes that margins remain robust and it anticipates meeting the board’s earnings expectations for FY24. We have reduced our revenue forecasts to reflect the strength of sterling versus a range of currencies but maintain our operating profit and EPS forecasts, resulting in a small uplift to operating margins in both years.
discoverIE Group |
Orders return to growth; FY24 earnings on track |
Trading update |
Electrical components |
7 February 2024 |
Share price performance
Business description
Next events
Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
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discoverIE’s Q324 trading update confirmed a return to organic order growth, while the decline in organic revenue reflected the expected unwind of customer inventory. The company notes that margins remain robust and it anticipates meeting the board’s earnings expectations for FY24. We have reduced our revenue forecasts to reflect the strength of sterling versus a range of currencies but maintain our operating profit and EPS forecasts, resulting in a small uplift to operating margins in both years.
Year |
Revenue |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/22 |
379.2 |
37.6 |
29.4 |
10.80 |
25.9 |
1.4% |
03/23 |
448.9 |
46.3 |
35.2 |
11.45 |
21.7 |
1.5% |
03/24e |
442.1 |
47.2 |
35.6 |
12.10 |
21.4 |
1.6% |
03/25e |
467.0 |
49.8 |
37.1 |
12.50 |
20.5 |
1.6% |
Note: *PBT and EPS as per discoverIE’s underlying metric (excludes amortisation of acquired intangibles and exceptional items).
Return to positive territory for orders
discoverIE saw Q324 organic orders increase 3% y-o-y at constant exchange rates (CER) and at a similar rate quarter-on-quarter, noting that this was the first quarter for order growth since Q223 (the quarter ended September 2022). Group revenue was down 4% CER y-o-y, with 3% growth from acquisitions offset by a 7% decline in organic revenue. This follows a period of very strong revenue growth (25% in FY22, 18% in FY23) and reflects customers working down inventory, as expected. Year-to-date revenue increased 1% CER y-o-y (3% from acquisitions, -2% organic) and year-to-date underlying profit is higher year-on-year on an organic basis before the contribution from acquisitions. Organic revenue in Q424 so far is up year-on-year and margins continue to be robust. Management believes the company is on track to deliver full-year earnings in line with board expectations.
Acquisition strategy on track
The company noted that recently acquired businesses, Silvertel (August 2023) and 2J Antennas (September 2023), are performing as expected with integration underway as planned. In January, discoverIE made a small bolt-on acquisition for the Noratel magnetics cluster in North America, paying a mid-single-digit EBIT multiple. Gearing at the end of Q324 was 1.5x, down from 1.6x at the end of H124.
Valuation: Order growth is positive lead indicator
The stock trades at a small premium to its broader UK industrial technology peer group on FY24 P/E but at a discount to peers with a similar decentralised operating model (such as Halma and Spirax). Considering that the earnings outlook has been maintained and the company continues to make excellent progress towards its margin targets, we believe this discount is overdone. Countering concerns on the market outlook, the focus on strategic growth markets should reduce cyclicality compared to the wider market and we note that the company has previously demonstrated its ability to manage costs and cash flow through periods of weaker demand.
Changes to forecasts
While management expects earnings to be in line with board expectations for FY24, currency is weighing on revenues with sterling stronger against multiple currencies this fiscal year compared to last year. We have reduced our revenue forecasts to reflect this but maintain our operating profitability and earnings forecasts. This has the effect of increasing the operating margin in both years.
Exhibit 1: Changes to forecasts
£m |
FY24e old |
FY24e new |
Change |
y-o-y |
FY25e old |
FY25e new |
Change |
y-o-y |
Revenues |
452.1 |
442.1 |
(2.2%) |
(1.5%) |
477.3 |
467.0 |
(2.2%) |
5.6% |
EBITDA |
71.8 |
71.8 |
0.0% |
9.8% |
76.6 |
76.6 |
0.0% |
6.7% |
EBITDA margin |
15.9% |
16.2% |
0.4% |
1.7% |
16.0% |
16.4% |
0.4% |
0.2% |
Underlying operating profit |
56.4 |
56.4 |
0.0% |
8.9% |
60.9 |
60.9 |
0.0% |
7.9% |
Underlying operating margin |
12.5% |
12.8% |
0.3% |
1.2% |
12.8% |
13.0% |
0.3% |
0.3% |
Normalised operating profit |
58.8 |
58.8 |
0.0% |
8.3% |
63.3 |
63.3 |
0.0% |
7.6% |
Normalised operating margin |
13.0% |
13.3% |
0.3% |
1.2% |
13.3% |
13.6% |
0.3% |
0.3% |
Underlying PBT |
47.2 |
47.2 |
0.0% |
2.0% |
49.8 |
49.8 |
0.0% |
5.5% |
Normalised PBT |
49.6 |
49.6 |
0.0% |
1.7% |
52.2 |
52.2 |
0.0% |
5.3% |
Normalised net income |
36.8 |
36.8 |
0.0% |
2.0% |
38.5 |
38.5 |
0.0% |
4.6% |
Normalised diluted EPS (p) |
37.4 |
37.4 |
0.0% |
1.8% |
38.9 |
38.9 |
0.0% |
4.0% |
Underlying diluted EPS (p) |
35.6 |
35.6 |
0.0% |
1.1% |
37.1 |
37.1 |
0.0% |
4.3% |
Reported basic EPS (p) |
21.9 |
21.9 |
0.0% |
(1.8%) |
23.1 |
23.1 |
0.0% |
5.5% |
Dividend per share (p) |
12.1 |
12.1 |
0.0% |
5.7% |
12.5 |
12.5 |
0.0% |
3.3% |
Net (debt)/cash |
(99.2) |
(99.2) |
0.0% |
132.4% |
(88.5) |
(88.5) |
0.0% |
(10.8%) |
Net debt/EBITDA (x) |
1.4 |
1.4 |
1.3 |
1.3 |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2020 |
2021 |
2022 |
2023 |
2024e |
2025e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
297.9 |
302.8 |
379.2 |
448.9 |
442.1 |
467.0 |
EBITDA |
|
|
43.6 |
44.0 |
56.1 |
65.4 |
71.8 |
76.6 |
Normalised operating Profit (before am, SBP and except.) |
31.6 |
31.9 |
44.8 |
54.3 |
58.8 |
63.3 |
||
Underlying operating Profit (before am. and except.) |
29.8 |
30.8 |
41.4 |
51.8 |
56.4 |
60.9 |
||
Amortisation of acquired intangibles |
(9.0) |
(11.1) |
(14.0) |
(15.8) |
(17.0) |
(18.6) |
||
Exceptionals |
(4.3) |
(2.6) |
(6.5) |
(1.4) |
(1.9) |
(1.0) |
||
Share-based payments |
(1.8) |
(1.1) |
(3.4) |
(2.5) |
(2.4) |
(2.4) |
||
Operating Profit |
16.5 |
17.1 |
20.9 |
34.6 |
37.5 |
41.3 |
||
Net Interest |
(4.3) |
(3.6) |
(3.8) |
(5.5) |
(9.2) |
(11.0) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
41.0 |
48.8 |
49.6 |
52.2 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
17.1 |
29.1 |
28.3 |
30.2 |
Tax |
(3.3) |
(4.0) |
(7.4) |
(7.8) |
(7.3) |
(8.0) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
30.8 |
36.1 |
36.8 |
38.5 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
9.7 |
21.3 |
21.0 |
22.3 |
||
Discontinued operations |
5.4 |
2.5 |
15.5 |
0.0 |
0.0 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
30.8 |
36.1 |
36.8 |
38.5 |
||
Net income (FRS 3) |
14.3 |
12.0 |
25.2 |
21.3 |
21.0 |
22.3 |
||
Ave. Number of Shares Outstanding (m) |
84.0 |
88.8 |
93.0 |
95.4 |
95.9 |
96.4 |
||
EPS - normalised & diluted (p) |
|
|
25.1 |
23.4 |
32.1 |
36.7 |
37.4 |
38.9 |
EPS - underlying, diluted (p) |
|
|
24.4 |
22.4 |
29.4 |
35.2 |
35.6 |
37.1 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
27.1 |
22.3 |
21.9 |
23.1 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
26.3 |
21.7 |
21.3 |
22.5 |
Dividend per share (p) |
2.97 |
10.15 |
10.80 |
11.45 |
12.10 |
12.50 |
||
EBITDA Margin (%) |
14.6 |
14.5 |
14.8 |
14.6 |
16.2 |
16.4 |
||
Normalised operating margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.8 |
12.1 |
13.3 |
13.6 |
||
discoverIE underlying operating margin (%) |
10.0 |
10.2 |
10.9 |
11.5 |
12.8 |
13.0 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
236.4 |
244.6 |
326.5 |
335.9 |
388.0 |
373.4 |
Intangible Assets |
182.2 |
190.8 |
263.3 |
272.0 |
323.2 |
306.3 |
||
Tangible Assets |
46.3 |
45.9 |
45.4 |
44.4 |
45.3 |
47.6 |
||
Deferred tax assets |
7.9 |
7.9 |
17.8 |
19.5 |
19.5 |
19.5 |
||
Current Assets |
|
|
197.4 |
183.6 |
266.2 |
249.8 |
194.5 |
211.0 |
Stocks |
68.4 |
67.7 |
77.8 |
90.0 |
92.1 |
97.7 |
||
Debtors |
90.1 |
84.9 |
78.0 |
74.6 |
78.7 |
83.9 |
||
Cash |
36.8 |
29.2 |
108.8 |
83.9 |
22.4 |
28.1 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(190.3) |
(151.2) |
(150.1) |
(151.5) |
Creditors |
(94.0) |
(102.2) |
(114.2) |
(107.3) |
(106.2) |
(107.6) |
||
Lease liabilities |
(5.3) |
(4.8) |
(4.7) |
(4.0) |
(4.0) |
(4.0) |
||
Short term borrowings |
(4.3) |
(0.8) |
(71.4) |
(39.9) |
(39.9) |
(39.9) |
||
Long Term Liabilities |
|
|
(129.7) |
(112.0) |
(112.0) |
(130.9) |
(120.4) |
(109.6) |
Long term borrowings |
(93.8) |
(75.6) |
(67.6) |
(86.7) |
(81.7) |
(76.7) |
||
Lease liabilities |
(14.7) |
(16.7) |
(16.4) |
(14.8) |
(14.8) |
(14.8) |
||
Other long term liabilities |
(21.2) |
(19.7) |
(28.0) |
(29.4) |
(23.9) |
(18.1) |
||
Net Assets |
|
|
200.5 |
208.4 |
290.4 |
303.6 |
311.9 |
323.3 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
42.5 |
52.1 |
60.6 |
64.2 |
Net Interest |
(3.7) |
(3.1) |
(3.3) |
(4.8) |
(8.7) |
(10.5) |
||
Tax |
(6.4) |
(7.2) |
(7.1) |
(9.0) |
(12.8) |
(13.7) |
||
Capex |
(6.3) |
(3.9) |
(6.2) |
(5.6) |
(8.5) |
(9.2) |
||
Acquisitions/disposals |
(73.6) |
(20.5) |
(46.8) |
(25.1) |
(68.5) |
(2.0) |
||
Financing |
53.9 |
(6.6) |
47.2 |
(7.5) |
(6.0) |
(6.1) |
||
Dividends |
(8.1) |
(2.8) |
(9.4) |
(10.5) |
(11.2) |
(11.9) |
||
Net Cash Flow |
3.8 |
12.7 |
16.9 |
(10.4) |
(55.1) |
10.7 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(30.2) |
(42.7) |
(99.2) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1.8) |
1.4 |
0.1 |
(2.1) |
(1.4) |
0.0 |
||
Closing net cash/(debt) |
|
|
(61.3) |
(47.2) |
(30.2) |
(42.7) |
(99.2) |
(88.5) |
Source: discoverIE, Edison Investment Research
|
|
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