FY26 organic revenue +2%, organic orders +5%

discoverIE reported revenue growth of 5% (2% organic) and order intake growth of 9% (5% organic), with organic order growth accelerating to 14% y-o-y and organic revenue growth to 5% y-o-y in Q426. The Controls unit within Magnetics & Controls has returned to order growth after a period of destocking. Adjusted operating profit was 1% higher after additional growth investment, with the margin down 0.5pp to 13.8%. Adjusted diluted EPS and the full year dividend were 4% higher. Gearing at year-end was 1.2x; on a pro forma basis including Trival (completed April 2026) and 3G (yet to complete), gearing would have been 2.2x, reducing to 1.8x by end FY27.

FY27 has started well

The order book at the end of FY26 was 2% higher y-o-y and 5% higher h-o-h. In Q127 to date, sales and orders continue to grow, with orders ahead of sales. Management sees the outlook for the year ahead as positive with full year adjusted earnings in line with board expectations. We have maintained our FY27 forecasts and introduce forecasts for FY28. We have not yet incorporated the 3Gmetalworx acquisition into our forecasts pending regulatory approvals.

Valuation: unwarranted discount

On a P/E basis, discoverIE continues to trade at a discount to the peer average (36% FY27, 26% FY28). Now that organic revenue growth has resumed, and recently announced/completed acquisitions are expected to boost margins, we believe this discount is overdone. The company’s active M&A pipeline and disciplined approach to valuation provide scope for further acquisitions to boost growth and earnings.

Review of FY26 results

We revised our forecasts in April to reflect the year-end trading update so FY26 results are broadly in line. Revenue growth of 5% was made up of 2% organic growth and a 3% contribution from acquisitions (Burster, Hivolt and Storm). The company noted that while gross margins improved by business by on average 0.2pp, the revenue mix offset this by 0.3pp. Adjusted operating profit was in line with our forecast while the adjusted operating margin declined 0.5pp y-o-y as the company decided to increase investment in the business to support future growth. Of the opex increase of £4.4m, around half was incremental investment in areas such as engineering and sales resources in Europe and North America, and capacity expansion in Asia. Net finance costs reduced by 12.5% to £9.1m, reflecting lower interest rates and lower use of the debt facility over the year. On a reported basis, the tax rate was 19.7% and on an adjusted basis, 23.5%. This resulted in adjusted diluted EPS growth of 4% y-o-y to 40.3p.

Net debt at year-end reduced 15% y-o-y to £80.5m, with gearing of 1.2x at year-end. The board recommended a final dividend of 8.95p (+4% y-o-y) making a full year dividend of 13.0p (+4% y-o-y).

Exhibit 2 summarises performance on a divisional basis.

Magnetics & Controls

Divisional revenue was up 2% on a reported, constant exchange rate (CER) and organic basis. The Magnetics unit saw strong growth, which was partially offset by ongoing destocking by customers of the Controls unit. Management believes that this destocking process is complete, with order intake up double-digits y-o-y for both units in H226 and revenue for Controls up y-o-y in Q426. Order intake for the whole division in FY26 was up 12% CER and 11% organically to £274.8m. Book-to-bill was 1.03x for the year (H1: 1.04x, H2: 1.02x). Growth was led by the renewables sector and Europe. US revenue declined due to the destocking issue.

The adjusted operating margin declined 0.9pp to 15.6%, mainly due to the higher proportion of lower margin Magnetics sales but also because roughly two-thirds of additional opex investment was in this division.

Sensing & Connectivity

Divisional revenue was up 9% on a reported basis, 8% CER and 2% organically. Growth was led by the medical and security sectors and by North America. Order intake declined 4% y-o-y organically to £173m against a strong prior year comparative, although H2 orders were up (H1: -10%, H2: +2%). Book-to-bill was 0.98x for the year (H1: 0.92x, H2: 1.04x).

The adjusted operating margin declined 0.3pp to 17.8%, due to the additional opex investment.

Strategic update

The group reiterated its strategy, which has the following overarching aims:

• Operate in structural growth markets: grow well ahead of GDP over the economic cycle by focusing on specialist technologies in high quality markets with long-term growth. By targeting five growth markets, create consistent, compounding growth with low customer concentration and less cyclical variability.
• Acquire highly differentiated businesses: acquire businesses operating in electronic market niches with strongly differentiated products, attractive growth prospects and strong operating margins, either as new platforms or as bolt-ons to existing clusters.
• Operating margin enhancement: generate operational efficiencies and improve operating margins through clustering of businesses and increasing product differentiation.
• Strong cash generation driving disciplined capital allocation: generate strong cash flows and long-term sustainable returns from a capital-light business model, re-investing free cash flow after dividends into organic growth opportunities and further acquisitions.
• Minimising environmental impact: reduce carbon emissions to achieve net zero (Scope 1 & 2) by 2030.

The key strategic indicators in Exhibit 3 are designed to track progress against these aims.

After two years of organic revenue declines, the group returned to organic growth of 2%. Over the 10 prior years to FY25, the group generated an organic revenue CAGR of 5.5%, meeting its target of exceeding GDP through the cycle. Organic growth in Q426 was 5%, pointing to an acceleration in FY27. As discussed above, the adjusted operating margin declined 0.5pp y-o-y to 13.8%, but management remains confident of hitting its 17% target by FY30, with roughly two-thirds of the increase expected from acquisitions. Adjusted EPS grew 4% y-o-y, below the target rate, but we note that the company achieved an EPS CAGR of 14% in the 10 years to FY25. Return on capital employed (ROCE) was slightly down y-o-y due to growth investments, both organic and inorganic, but was above the target rate. Cash flow generation remains strong, with both operating cash flow conversion and free cash flow conversion exceeding the company’s targets. The company achieved its target to reduce scope 1 and 2 emissions by 65% by the end of CY25 and is now working towards its target of reaching net zero by FY30.

Recent acquisitions enhance margins

Over the last six months, the company has announced three acquisitions and completed two, paying an average EBIT multiple of 9x.

• Keymat, now referred to by its trading name Storm, was acquired in December 2025 for £5.5m in cash upfront. Storm makes assistive interface electronics and has joined Cursor Controls in the Magnetics & Controls division.
• The acquisition of Trival, an antenna and antenna mast manufacturer focused on land-based defence markets, was announced in December 2025 and completed in April after receiving the relevant regulatory approvals. The business has operating margins well ahead of discoverIE’s 17% target. It has been factored into our forecasts from the start of the current year. The company paid £39.9m in cash upfront with up to £6.25m deferred and contingent consideration payable. Trival joined the Connectivity unit within the Sensing & Connectivity division alongside 2J and Antenova.
• On 19 May, the company announced the acquisition of 90% of 3Gmetalworx (3G), a North American specialist in electromagnetic shielding. The deal will cost £50m in cash upfront and requires regulatory approval, which is expected in the next few months. The company has not disclosed its precise operating margin but noted that it is well in excess of discoverIE’s medium-term 17% target. 3G will join the Connectivity unit within the Sensing & Connectivity division and will retain its brand identity. It will work alongside MTC, discoverIE’s existing electromagnetic shielding business.

Management estimates that annualising the contribution from Trival and 3G would enhance adjusted operating margins by c 0.8pp. Both Trival and 3G have significant exposure to the defence market, which should bolster revenues in the security segment, added as the fifth target market in September 2024. Management noted that it had hired business development capability to pull together the group approach to the defence market.

The company estimates that pro forma gearing as at the end of FY26, which factors in both the Trival and 3G acquisitions, would be 2.2x, falling to 1.8x by the end of FY27. Management estimates that it has capacity for a small bolt-on and noted that the refinancing in November 2025 raised the covenant level from 3x to 3.5x, leaving headroom for discoverIE to exceed its 1.5–2.0x gearing range as long as it has confidence that gearing will reduce quickly.

Outlook and changes to forecasts

FY26 order intake was up 9%, or 5% on an organic basis, with Q426 order intake up 14% y-o-y on an organic basis. Book-to-bill for the year was just above 1 at 1.01x (H1: 0.99x, H2: 1.03x). The order book at the end of FY26 was 2% higher y-o-y and 5% higher h-o-h at £165m, representing c 4.5 months’ worth of revenue.

Trading has started well in Q1, with further good sales and order growth, and orders ahead of sales. Customers are placing orders with a mix of short-term and slightly longer-term delivery dates, with around half required in the next four to six months and the remainder in the next six to 12 months.

Management sees the outlook for the year ahead as positive with full year adjusted earnings in line with board expectations. We have broadly maintained our FY27 forecasts and introduce forecasts for FY28. We have not yet incorporated 3G into our forecasts pending regulatory approvals.