Last close As at 05/08/2026
GBP8.23
▲ 24.00 (3.00%)
Market capitalisation
GBP802m
Research: TMT
discoverIE’s H125 trading update confirmed that underlying earnings expectations for FY25 are unchanged. Destocking by industrial customers reduced in H125, with some now starting to place orders, resulting in a stabilisation in group order intake. Design wins in H125 with an estimated lifetime value (ELV) of £205m provide a strong foundation for future growth once destocking is complete. We maintain our FY25 and FY26 EPS forecasts despite reducing our revenue forecasts to reflect FX headwinds and lower organic growth in H125, reflecting continued good cost control and reducing interest rates.
discoverIE Group |
Orders stabilising, EPS & margin targets on track |
H125 trading update |
Electrical components |
16 October 2024 |
Share price performance
Business description
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Analyst
discoverIE Group is a research client of Edison Investment Research Limited |
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discoverIE’s H125 trading update confirmed that underlying earnings expectations for FY25 are unchanged. Destocking by industrial customers reduced in H125, with some now starting to place orders, resulting in a stabilisation in group order intake. Design wins in H125 with an estimated lifetime value (ELV) of £205m provide a strong foundation for future growth once destocking is complete. We maintain our FY25 and FY26 EPS forecasts despite reducing our revenue forecasts to reflect FX headwinds and lower organic growth in H125, reflecting continued good cost control and reducing interest rates.
Year |
Revenue |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
03/23 |
448.9 |
46.3 |
35.2 |
11.45 |
18.2 |
1.8 |
03/24 |
437.0 |
48.2 |
36.8 |
12.00 |
17.5 |
1.9 |
03/25e |
441.1 |
49.9 |
37.3 |
12.50 |
17.2 |
1.9 |
03/26e |
454.7 |
52.4 |
39.0 |
13.00 |
16.5 |
2.0 |
Note: *PBT and EPS as per discoverIE’s underlying metric (excludes amortisation of acquired intangibles and exceptional items).
Orders +8% CER y-o-y, book-to-bill approaches 1x
discoverIE reported a 5% y-o-y decline in sales in H125, or 4% lower at constant exchange rates (CER). Organic sales declined 10% y-o-y, partially offset by an 8% contribution from acquisitions and a 2% decline from the disposal of Santon’s solar business. In Q225, organic sales declined 7% y-o-y compared to 12% in Q125. Orders increased 8% CER y-o-y and h-o-h with book-to-bill increasing to 0.98x from 0.89x in H124. Organic order growth was 1% y-o-y and 5% h-o-h. Design wins with an ELV of £205m were 8% higher y-o-y and 33% higher compared to H123.
Earnings outlook maintained
The company noted that gross margins in H125 were robust, working capital was tightly managed and it expects to achieve its operating margin targets (13.5% for FY25 and 15% in the medium term). Gearing (net debt/EBITDA) at the end of H125 is expected to be 1.45x, down from 1.5x at the end of FY24 and below the target range of 1.5–2.0x. We have reduced our revenue forecasts for FY25 and FY26 mainly for the impact of FX and trimmed our underlying operating profit forecasts; this is offset by lower interest charges, resulting in no change to our EPS forecasts.
Valuation: Order growth to trigger upside
The stock trades at a 20% discount to its broader UK industrial technology peer group on FY25e P/E and at a larger discount to peers with a similar decentralised operating model (such as Halma and Spirax). Considering that the earnings outlook has been maintained, orders have stabilised and discoverIE continues to make excellent progress towards its margin targets, we believe this discount is overdone. The company has shown that focusing on strategic growth markets reduces cyclicality compared to the wider market and recent design win activity provides the foundations for revenue growth once larger industrial customers’ de-stocking is complete.
Exhibit 1: Financial summary
£m |
2020 |
2021 |
2022 |
2023 |
2024 |
2025e |
2026e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
297.9 |
302.8 |
379.2 |
448.9 |
437.0 |
441.1 |
454.7 |
EBITDA |
|
|
43.6 |
44.0 |
56.1 |
65.4 |
71.1 |
74.6 |
77.1 |
Normalised operating Profit (before am, SBP and except.) |
31.6 |
31.9 |
44.8 |
54.3 |
59.5 |
62.9 |
65.3 |
||
Underlying operating Profit (before am. and except.) |
29.8 |
30.8 |
41.4 |
51.8 |
57.2 |
60.5 |
62.9 |
||
Amortisation of acquired intangibles |
(9.0) |
(11.1) |
(14.0) |
(15.8) |
(16.2) |
(17.0) |
(17.0) |
||
Exceptionals |
(4.3) |
(2.6) |
(6.5) |
(1.4) |
(9.8) |
(3.0) |
(3.0) |
||
Share-based payments |
(1.8) |
(1.1) |
(3.4) |
(2.5) |
(2.3) |
(2.4) |
(2.4) |
||
Operating Profit |
16.5 |
17.1 |
20.9 |
34.6 |
31.2 |
40.5 |
42.9 |
||
Net Interest |
(4.3) |
(3.6) |
(3.8) |
(5.5) |
(9.0) |
(10.6) |
(10.5) |
||
Profit Before Tax (norm) |
|
|
27.3 |
28.3 |
41.0 |
48.8 |
50.5 |
52.3 |
54.8 |
Profit Before Tax (FRS 3) |
|
|
12.2 |
13.5 |
17.1 |
29.1 |
22.2 |
29.9 |
32.4 |
Tax |
(3.3) |
(4.0) |
(7.4) |
(7.8) |
(6.7) |
(7.9) |
(8.5) |
||
Profit After Tax (norm) |
21.8 |
21.6 |
30.8 |
36.1 |
37.9 |
38.5 |
40.4 |
||
Profit After Tax (FRS 3) |
8.9 |
9.5 |
9.7 |
21.3 |
15.5 |
22.0 |
23.9 |
||
Discontinued operations |
5.4 |
2.5 |
15.5 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (norm) |
21.8 |
21.6 |
30.8 |
36.1 |
37.9 |
38.5 |
40.4 |
||
Net income (FRS 3) |
14.3 |
12.0 |
25.2 |
21.3 |
15.5 |
22.0 |
23.9 |
||
Ave. Number of Shares Outstanding (m) |
84.0 |
88.8 |
93.0 |
95.4 |
95.8 |
95.9 |
96.4 |
||
EPS - normalised & diluted (p) |
|
|
25.1 |
23.4 |
32.1 |
36.7 |
38.5 |
39.1 |
40.8 |
EPS - underlying, diluted (p) |
|
|
24.4 |
22.4 |
29.4 |
35.2 |
36.8 |
37.3 |
39.0 |
EPS - IFRS basic (p) |
|
|
17.0 |
13.5 |
27.1 |
22.3 |
16.2 |
23.0 |
24.8 |
EPS - IFRS diluted (p) |
|
|
16.5 |
13.0 |
26.3 |
21.7 |
15.8 |
22.3 |
24.1 |
Dividend per share (p) |
2.97 |
10.15 |
10.80 |
11.45 |
12.00 |
12.50 |
13.00 |
||
EBITDA Margin (%) |
14.6 |
14.5 |
14.8 |
14.6 |
16.3 |
16.9 |
17.0 |
||
Normalised operating margin (before am, SBP and except.) (%) |
10.6 |
10.5 |
11.8 |
12.1 |
13.6 |
14.3 |
14.4 |
||
discoverIE underlying operating margin (%) |
10.0 |
10.2 |
10.9 |
11.5 |
13.1 |
13.7 |
13.8 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
236.4 |
244.6 |
326.5 |
335.9 |
381.0 |
363.1 |
352.4 |
Intangible Assets |
182.2 |
190.8 |
263.3 |
272.0 |
329.5 |
307.7 |
292.9 |
||
Tangible Assets |
46.3 |
45.9 |
45.4 |
44.4 |
41.1 |
45.0 |
49.1 |
||
Deferred tax assets |
7.9 |
7.9 |
17.8 |
19.5 |
10.4 |
10.4 |
10.4 |
||
Current Assets |
|
|
197.4 |
183.6 |
266.2 |
249.8 |
287.7 |
294.4 |
309.5 |
Stocks |
68.4 |
67.7 |
77.8 |
90.0 |
80.1 |
92.3 |
95.2 |
||
Debtors |
90.1 |
84.9 |
78.0 |
74.6 |
88.8 |
80.3 |
82.7 |
||
Cash |
36.8 |
29.2 |
108.8 |
83.9 |
110.8 |
120.8 |
130.7 |
||
Current Liabilities |
|
|
(103.6) |
(107.8) |
(190.3) |
(151.2) |
(185.4) |
(180.9) |
(183.6) |
Creditors |
(94.0) |
(102.2) |
(114.2) |
(107.3) |
(101.0) |
(96.5) |
(99.2) |
||
Lease liabilities |
(5.3) |
(4.8) |
(4.7) |
(4.0) |
(5.7) |
(5.7) |
(5.7) |
||
Short term borrowings |
(4.3) |
(0.8) |
(71.4) |
(39.9) |
(78.7) |
(78.7) |
(78.7) |
||
Long Term Liabilities |
|
|
(129.7) |
(112.0) |
(112.0) |
(130.9) |
(181.7) |
(170.8) |
(159.9) |
Long term borrowings |
(93.8) |
(75.6) |
(67.6) |
(86.7) |
(136.1) |
(131.1) |
(126.1) |
||
Lease liabilities |
(14.7) |
(16.7) |
(16.4) |
(14.8) |
(14.4) |
(14.4) |
(14.4) |
||
Other long term liabilities |
(21.2) |
(19.7) |
(28.0) |
(29.4) |
(31.2) |
(25.3) |
(19.4) |
||
Net Assets |
|
|
200.5 |
208.4 |
290.4 |
303.6 |
301.6 |
305.7 |
318.4 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
48.0 |
56.8 |
42.5 |
52.1 |
66.0 |
61.4 |
69.6 |
Net Interest |
(3.7) |
(3.1) |
(3.3) |
(4.8) |
(7.7) |
(10.1) |
(10.0) |
||
Tax |
(6.4) |
(7.2) |
(7.1) |
(9.0) |
(12.5) |
(13.7) |
(14.4) |
||
Capex |
(6.3) |
(3.9) |
(6.2) |
(5.6) |
(4.9) |
(9.2) |
(9.5) |
||
Acquisitions/disposals |
(73.6) |
(20.5) |
(46.8) |
(25.1) |
(82.8) |
5.0 |
(2.0) |
||
Financing |
53.9 |
(6.6) |
47.2 |
(7.5) |
(9.3) |
(6.6) |
(6.6) |
||
Dividends |
(8.1) |
(2.8) |
(9.4) |
(10.5) |
(11.2) |
(11.7) |
(12.2) |
||
Net Cash Flow |
3.8 |
12.7 |
16.9 |
(10.4) |
(62.4) |
15.0 |
14.9 |
||
Opening net cash/(debt) |
|
|
(63.3) |
(61.3) |
(47.2) |
(30.2) |
(42.7) |
(104.0) |
(89.0) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1.8) |
1.4 |
0.1 |
(2.1) |
1.1 |
(0.0) |
0.0 |
||
Closing net cash/(debt) |
|
|
(61.3) |
(47.2) |
(30.2) |
(42.7) |
(104.0) |
(89.0) |
(74.1) |
Source: discoverIE, Edison Investment Research
|
|
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