Discoverie Grp. Share Price (DSCV)

Tipped as a Buy tonight on Master Investor - hopefully new highs tomorrow? IMO his 550p target in a year may be quite light if DSCV make the acquisitions they've been promising, as the current rating in itself isn't very demanding.

Mark Watson-Mitchell seems to share my taste - he's also tipped CAPD and HMLH recently, both of which I hold:

Https://masterinvestor.co.uk/equities/discoverie-group-aims-to-double-earnings-within-five-years/?utm_source=Daily+Bulletin&utm_campaign=dc419bdff7-Daily_Bulletin_20190808&utm_medium=email&utm_term=0_25eff0bb7f-dc419bdff7-34898813

Extract:

"discoverIE Group aims to double earnings within five years
By Mark Watson-Mitchell 08 August 2019"

"The group, which has a solid balance sheet, has some good growth company strategic aims – including providing its investors with returns of 15-20% per annum, to continue building revenues, to acquire high quality businesses, to carry on internationalising the business, together with providing a progressive dividend, and best of all is its target to double its earnings per share within the next five years.

Its shares at just 438p are trading below that of the average of its peers, which would put them out at 510p. However, I rate them higher, especially if it can achieve its aim of doubling its earnings per share within five years.

I suggest a target price of 550p taking just a one-year view.£

Finncap retain their 535p target price. They summarise as follows:

"Strong sales growth. Acquisitions are contributing well with total Q1 sales up +8%
and organic growth of +4% in Design and Manufacturing (in line with our full-year
forecast) and +3% in Custom Supply (ahead of our full-year assumption of flat sales).

.New project design wins remain strong. There have been a number of successes
in key target sectors, in particular, the renewable energy, transportation and industrial markets. Project design wins are a key driver of future organic growth.

.Rising operating margins. Q1 gross margins are in line with last year. We forecast
flat gross margins for the full year and operating margins of 7.6% (2019: 7.0%). This continues a well-established trend of rising operating margins, driven by the strategy. Over the past five years, operating margins have increased in every year, in total from 3.4% to 7.0%.

.Positive outlook supported by the order book. Book to bill was 1.09 in DM and
1.07 in Custom Supply. The group order book (80% of which is for delivery over the
next 12 months), rose to £154m (+13% at CER and +8% organic) over last year.

.Firepower for acquisitions. Post the year end, a £28m fund raise was completed
and two acquisitions completed at an initial cost of £21m. We forecast net debt/EBITDA of 1.1x in FY 2020.

No change to target price of 535p. The continuing success of discoverIE’s strategy
drove a 17% CAGR in EPS over the past three years. We don’t forecast acquisitions
as their scale and timing are variable, but in essence we so no major reason for
above-average growth not to continue, given the successful focus on structurally
growing markets. In this context, the FY 2020 P/E of 14.5x is not demanding against
small/mid cap 14.6x."

For example, Santon, a solar power components business bought in February 2018, initially focused on renewable energy but is now seeing opportunities develop in other sectors, particularly transport.

Results have reflected the growing scope of the operations.

Revenues in the year to March rose by 14 per cent to £439million, with organic growth contributing 8 per cent of that.

Underlying profits were 28 per cent better at £37million, while there was an impressive £28.6million of cash generated.

The strong cash number has seen investors get their share, with the final dividend hiked by 6 per cent to 6.75p per share to give 9.55p in total for the year and a yield currently of 2.4 per cent.

Jefferies is confident about this year, which should see the benefit of the latest acquisitions: Hobart, a US-based designer and manufacturer of transformers, inductors and magnetic components, and Positek, which makes rugged, high accuracy linear, rotary, tilt and submersible sensors.

The potential here was highlighted by analysts at Berenberg, who in a June note said the business now had some of the 'most attractive' growth opportunities in the UK industrials sector.

The German investment bank believes that because of its relatively small size, DiscoverIE will find it easier to find family-run businesses where the owners are willing to sell at a reasonable price.

In particular, the D&M division's position in a large and highly fragmented customised market gives 'plenty of scope' to grow both organically and through acquisitions.

Berenberg estimates DiscoverIE has £30million of acquisition firepower, which if deployed sensibly could lift earnings by 10 per cent.

The broker expects this year's earnings (EBITDA) to rise by 13 per cent to £42million while sales should increase to £465million before any additional bolt-on or potentially larger deals.

Berenberg's target price for the shares is 520p, a 25 per cent premium to the current 412p and market cap of £326million.

Jefferies, too, believes now is a good time for the company to continue its acquisition trajectory as wider uncertainty in the market was 'definitely taking the lid off' price expectations, particularly in the US.

'We've got a lot on the go and a very clear plan of what we're going to buy, how we're going to buy it and how we're going to integrate it'."

Excellent trading update whilst I was on hols. Incidentally, DSCV were featured nicely in the Mail too:

Https://www.thisismoney.co.uk/money/markets/article-7249045/SMALL-CAP-SHARE-IDEAS-DiscoverIE-plugs-booming-markets.html

"SMALL CAP SHARE IDEAS:

DiscoverIE plugs into booming markets as demand for electronics surges across transportation, energy and medicine

Electronic components might not sound sexy, but they have proved a decent hunting ground for investors.

FTSE 100 member Halma has been an outstanding performer for decades, while Diploma is a FTSE 250 stalwart after doubling in value in four years.

DiscoverIE is another electronics group heading upwards and the Guildford-based group has big plans.

Chief executive Nick Jefferies says the company is a 'natural consolidator' in a fragmented market and is snapping up 'high quality, higher-margin' businesses.

Three purchases over the last twelve months highlight how the pace is quickening and with industry and society becoming ever more reliant on electronics, DiscoverIE is very handily positioned.

To ensure that it keeps up with the changing landscape, the company focuses its efforts on what it says are 'key markets' that have structural growth and, more importantly, an increasing need for electronic components.

Renewable energy, transportation, medicine and industrial connectivity are the current targets.

Just in the renewable energy market alone, forecasts are for the size of the market to grow to £1.2trillion by 2025 from around £744billion in 2017.

The firm uses its in-house engineering facilities to design, manufacture, and supply components to customer specifications.

Currently, there are production houses in several jurisdictions including China, Germany, India, the US in addition to the UK.

What customers want can range from incredibly precise instruments like tilt angle sensors, which are used to monitor the rolls of aircraft and boats, to less technologically demanding systems like touchpads, computer mouse trackballs and keyboards.

These electrical parts are the bread and butter of the business.

Currently, DiscoverIE's design & manufacturing (D&M) division, which focuses on making custom electronic products or modifying existing ones to client specifications, has around 5,000 customers on its books.

Meanwhile, its supply arm, which delivers electronic and medical products from third party suppliers, serves over 20,000 industrial manufacturers.

The group's clients have included the Norwegian Public Roads Administration, which wanted components to improve emergency services communication and video surveillance in road tunnels.

A logistics group, meanwhile, wanted a custom -designed vehicle tracking and fleet management solution

Jefferies adds that increasingly the company is developing products that can be used across all its arms."

Downing's Fund Manager, James Lynch, outlines the attractions of investing for Income & Capital Growth, using the examples of DSCV, (ADT & RFX.)

https://www.piworld.co.uk/2019/07/17/downing-income-growth-presentation-at-mello-may-2019/