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03/2/2020
15:41 | rivaldo: Cheers nw99. However, for courtesy's sake I should say that I've sold my shares here now, due to the coronavirus.
DSCV have one of their locations in China, which is likely to be suffering. But mainly, despite DSCV's core sectors being very resilient and largely non-cyclical, they do also have a chunk of business in semiconductors and other cyclical areas, and I just felt that DSCV were one of the more exposed companies in my portfolio to a general slowdown.
I'm around 130% up here, so it's always good to protect a decent profit. And since DSCV is reasonably well rated my thinking is that whilst there may not be too much immediate upside, there may be more downside for the moment.
Good luck to others here, and I may well be back in soon. Cue another acquisition tomorrow morning!
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16/1/2020
13:17 | rivaldo: Standard Life have been buying heavily - they now have 8.87m shares, or 10.01%, an increase of 1.7m shares from the 7.17m shares per their last holding RNS:
Https://www.investegate.co.uk/discoverie-group-plc--dscv-/rns/holding-s--in-company/202001161057270481A/
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23/12/2019
11:37 | rivaldo: RNS today - BlackRock have been buying heavily.
At 28th November per DSCV's web site they had 3,242,721 shares. Now they have 4.479,425 shares and have gone above 5% so have had to declare for the first time.....
Https://www.investegate.co.uk/discoverie-group-plc--dscv-/rns/holding-s--in-company/201912230926488154X/
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17/12/2019
13:40 | rivaldo: Given that it's now over a month old, it's worth posting extracts from the major Buy tip SCSW wrote for DSCV in the prior issue:
Https://www.scsw.co.uk/article.php?id=8254
"To my mind, this business is beginning to resemble a multi-stage rocket - a launch vehicle that uses several rocket stages, each of which contains its own engines and propellant and gives it an extra thrust to keep it going (I will say why at the end of the article) - and I think it’s about to enter its most exciting phase.
DiscoverIE is a supplier of custom electronic products including transformers, sensors and the like and these are sold into a range of industrial end-markets such as renewable energy (notably wind), transportation, medical and industrial connectivity (IoT), all of which are high growth and exciting."
"DiscoverIE today operates through two divisions, namely Custom Supply, which is its third party distribution activities and Design & Manufacturing (D&M), which are the products manufactured in-house. Last year D&M’s £266m sales accounted for c.61% of overall group sales (up from 37% of smaller sales in 2015) and EBITA was 78% of the total (up from 62%).
The focus on specialisation has already had a seismic impact on margins. Since 2014, gross margins are up from 30% to 33% whilst operating margins have doubled over the same five year period, from 3.4% in 2014 to 7% in 2019.
Looks like a multi-stage rocket
Thanks to its M&A activity, which has brought into the fold a diversified mix of manufacturing businesses, including bespoke transformers, sensors and power supplies, between 2015 and 2019 group sales have risen from £271m to £439m, pretax profits from £11.8m to £27.2m, and eps from 15.4p to 27.2p.
I don’t think it is too far-fetched to imagine that with help from further acquisitions the company could double or treble in size over the next three years and a note published by broker Jefferies, the house stockbroker, also describes DiscoverIE as, “having the potential to move from being a small cap to a mid cap over the next few years” because the virtuous circle of strong cash generation being recycled into such eps enhancing acquisitions to gain new skills, expand geographically and access new customers will maintain momentum."
"Design & Manufacturing
Whilst Custom Supply’s performance is likely to be flat when DiscoverIE reports its interims later this month on 28 November, the other division, Design & Manufacturing (D&M), has enjoyed astonishingly robust trading. This is the bit that has been built up via 15 acquisitions completed since 2014, for which DiscoverIE has paid a total consideration of c.£245m. Between 2014-2019, D&M has ballooned from £35.9m sales to £266m - equating to a compound growth rate of 49%. Although it is largely down to M&A, the next first half will also show an acceleration in D&M’s organic growth to 12% year-on-year.
Each of the 15 businesses (including Contour Electronics, Flux, Foss, Heason, Hectronic, Herga, Ixthus Instrumentation, MTC, Myrra, Noratel, RSG, Variohm Eurosensor, Vertec and Sens-Tech) continues to be operated under their own brands although being part of a larger group leads to buying benefits for raw materials, logistics and also integration of warehouses and IT systems.
The key segments comprise transformers (essential components used to step voltages up and down using coils of copper and iron to produce a changing magnetic field); communications (RF and MW components, fibre optic components, frequency controls, wireless modules etc); power segments (standard and customisable power designs); and sensors (sensors, accelerometers, transmitters).
DiscoverIE uses a direct sales force who work with a customer’s R&D engineers to offer design expertise and refer customers to engineers at one of DiscoverIE’s many customer service centres to help modify an existing off-the-shelf part or design and develop a custom solution. By way of example, a customer might want an exhaust sensor that feeds back information to the engine management system; another might want an industrial data recorder that can be integrated with a level crossing.
Once designed and prototyped DiscoverIE then supplies the finished product with production facilities located across Europe as well as in India, Sri Lanka, Thailand and Mexico. Consequently, D&M’s customers don’t quibble on the price as instead it boils down to specialist features and quality, resulting in higher margins versus Custom & Supply (12% on average in the past five years versus 4%-5%).
Sticky revenues
Typically, the work DiscoverIE undertakes is on a project basis with design cycles varying in length (from 2 months to 2-3 years). This results in better visibility of demand compared to the pure distributor peers, whose visibility is usually no more than a few days.
The specialist nature of the products - and the fact that c.80% of sales are unique or custom designed rather than off the shelf - results in strong client retention because once a part supplied by DiscoverIE has been designed-into a customer’s product, they don’t often change supplier. There is also low risk of inventory becoming obsolete as DiscoverIE only builds to order and the order book increased to £153m at 30 September.
DiscoverIE has also created structural clusters - or centres of excellence - meaning that smaller businesses operate through larger entities, which are active in the same product area. This allows all the divisional companies to fully benefit from the group’s extensive and global customer base, and it also helps drive cross-selling opportunities as one division of the group increasingly turns to another to supply vital components, driving a bigger share of a customer’s wallet. In the wind sector, for instance, MTC provided optical wireless connectivity to Myrra's charging units and Variohm provided components for the airflow measurement of turbines. Cross-selling from such initiatives is running at £10.6m of sales or 2.4% of the total in 2019 and is on a rising trend.
Positioned in niche markets
As already described, DiscoverIE’s four target end markets (renewable energy, transportation, medical and industrial connectivity) means customer spending isn’t following the economic cycle and explains the 12% organic growth expected in the first half for D&M. Together the four segments represent 66% of group sales, and 71% of D&M last year.
The company cites that renewables (wind in particular) is seeing the fastest growth in the electricity sector and is expected to provide almost 30% of power demand by 2023. Industrial connectivity is seeing the seismic effect of digital transformation and also the Internet of Things (IoT), which connects physical objects to the web and allows machines and equipment to communicate by gathering, receiving and distributing information. Most processes now incorporate some IoT element and with the arrival of compact and cheap sensors, together with high-bandwidth wireless networks, this has never been easier.
Increasing exposure to the US and Asia
One spin-off benefit from the acquisition strategy is that the business has become internationalised. Sales from the UK have decreased from 50% to 21% between FY09 and FY19, with Europe now 61% and Rest of World, including US and Asia, the balance.
Last month, DiscoverIE completed its second ever largest acquisition when it bought Sens-Tech (a designer, manufacturer and supplier of specialist sensing and data acquisition modules) for an initial £58m. X-ray and photo detection are increasingly used across several applications, be it for transport security (scanning bags and people), medical diagnostics or for food production and quality control and Sens-Tech’s last reported sales were £15m of which 70% was generated in North America and Asia.
It beautifully encapsulates the staging potential that I described in my multi-stage rocket analogy in the introduction because not only is focus moving to the biggest US and Asian markets but acquisitions have started to be even more profitable. Sens-Tech’s margins were a staggering 35%, even better than the previous two acquisitions (Hobart and Positek), with EBIT margins of over 20%. As these three businesses contribute for a full period, they will push up the average. In the light of the deal, broker Peel Hunt nudged up its eps forecast for the year to end March ‘20 to 29p with next year’s upgraded by 6% to 31.7p. I am a buyer ahead of interims due on 28 November."
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16/12/2019
13:52 | rivaldo: Good to see DSCV tipped again on Master Investor:
Https://masterinvestor.co.uk/equities/small-cap-round-up-featuring-braemar-shipping-su-angling-direct-and-more/?utm_source=Daily+Bulletin&utm_campaign=75d88b28cb-Daily_Bulletin_20191213&utm_medium=email&utm_term=0_25eff0bb7f-75d88b28cb-34898813
"discoverIE Group (LON:DSCV) – broker positivity
Brokers Panmure Gordon have initiated coverage of this electronic components designing and manufacturing group. They rate the shares as a ‘buy’, looking for them to rise to 615p, which is not as high as Peel Hunt are aiming for – they go for 650p and also state that they are a ‘buy’.
The recent 33% rise in first-half profits and a record order book suggests that these brokers are onto a winner.
Closing the week at 538p the shares still have big upside potential."
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04/12/2019
06:55 | rivaldo: Tipped on the Master Investor web site featuring Peel Hunt's increased 650p target price:
Https://masterinvestor.co.uk/equities/small-cap-round-up-featuring-capital-drilling-discoverie-augean-and-more/?utm_source=Daily+Bulletin&utm_campaign=f91fc88956-Daily_Bulletin_20191128_COPY_01&utm_medium=email&utm_term=0_25eff0bb7f-f91fc88956-34898813
"discoverIE Group (LON:DSCV)
The customised electronics designer, manufacturer and supplier announced, on Thursday, its interims to end-September.
They recorded a 10% increase in revenue to £232m and pre-tax profits of £10.4m, which was up an impressive 33%.
Earnings at the halfway stage were 28% better at 9.1p per share, while the dividend was raised just 6% to 2.97p a share.
At the period end the group’s order book stood at £153m, which was up a healthy 15%. The group stated that it is trading in line with market expectations for the full year.
In early August I profiled the company at 438p and set a 550p target price by the end of next year.
After the results I was pleased to see that broker finnCap has upped its target from 535p to 579p. And even more so to see Peel Hunt increasing their sights from 530p up to 650p.
The shares close the week trading at around the 550p level, so I am obviously very pleased that my target price has been scored so soon."
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29/10/2019
11:00 | rivaldo: New Edison note - they note DSCV is trading at a 13% discount to its peers:
Https://www.edisongroup.com/publication/high-margin-sensor-technology-acquisition/25338/
Extracts:
"discoverIE has announced the acquisition of Sens-Tech for an initial cash consideration of £58m, partially funded by a £33m placing at 415p per share. Sens-Tech designs and manufactures specialist sensing technology and fits with discoverIE’s strategy to buy businesses supplying niche, highly customised products for critical applications. The business increases the group’s international revenues and boosts its presence in target markets such as transportation and healthcare. This is discoverIE’s largest acquisition since Noratel in FY15; we estimate the deal is immediately earnings enhancing (FY20e EPS +2%, FY21e +5%)."
"Valuation: D&M focus supports upside
discoverIE continues to trade at a discount to peers (13% discount based on FY20e P/E, 8% FY21e). Further progress in increasing the weighting of business towards the higher growth and margin D&M business (64% of H120 revenues vs 61% in FY19), combined with maintaining the profitability of the Custom Supply business, should help to reduce the discount. The stock is supported by a dividend yield above 2%."
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29/10/2019
07:27 | rivaldo: Cheers - appreciated!
DSCV have been tipped again by Mark Watson-Mitchell with a 550p target:
Https://masterinvestor.co.uk/equities/small-cap-round-up-featuring-solid-state-discoverie-bloomsbury-and-more/?utm_source=Daily+Bulletin&;utm_campaign=7dee5b5c47-Daily_Bulletin_20191024_COPY_01&;utm_medium=email&utm_term=0_25eff0bb7f-7dee5b5c47-34898813
"discoverIE Group (LON:DSCV)
I see that Jefferies International have placed a ‘buy’ rating on this group’s shares, at the same time as raising their target price from their previous 500p to 540p.
That brings the brokers closer to my own early August valuation when I profiled the shares at 448p; they are now 458p. That is quite an impressive performance after the group last week announced its £33m placing of 8,034,840, new shares at 415p per share for its £58m SansTech acquisition."
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17/10/2019
07:15 | rivaldo: A great looking acquisition today, funded from DSCV's own resources and a placing:
- immediately earnings-enhancing
- lots of recurring/repeating revenues
- increases the amount of high margin D&M work still further
- also increases exposure to high growth and non-cyclical areas like medical and transport
This acquisition looks really good and is pretty sizeable at £58m:
Https://uk.advfn.com/stock-market/london/discoverie-DSCV/share-news/discoverIE-Group-plc-Acquisition-Proposed-Placin/80937134
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10/10/2019
07:14 | rivaldo: Excellent trading statement today.
H1 trading is "good against strong comparators", and DSCV are already saying the year is on track to meet expectations.
Organic sales rates are actually increasing, having risen in Q2 over Q1.
Above all, the higher margin D&M division (now up to 64% of sales) is growing ahead of the market as a whole at 12% over last year.
Plus there's an "active pipeline of acquisition opportunities"....
Https://uk.advfn.com/stock-market/london/discoverie-DSCV/share-news/discoverIE-Group-plc-Trading-Update/80895734
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PLUS1
