Discoverie Share Discussion Threads

[rivaldo] 24/12/2019 08:19

Encouraging new 9 minute interview with the CEO:

- H1 was "a very good period of trading"
- 90% of new design wins are in the four target markets which are growing faster than the average
- there should be 2 or 3 acquisitions a year
- order book is doing very well
- business model is cap.ex light and very cash-generative

[rivaldo] 23/12/2019 11:37

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.....

[rivaldo] 20/12/2019 10:51

New highs now, and buying coming in at the full 568p offer.

[onjohn] 20/12/2019 09:07

up 17p

im not complainin

[davr0s] 20/12/2019 08:37

Not a single trade gone thru - nothing to see here atm today. They are just fishing for orders. If I see the spreads here or higher supported by trades I'll start to believe it's on the move

[nw99] 20/12/2019 08:29

About time

[onjohn] 20/12/2019 08:23

next leg up

[rivaldo] 17/12/2019 13:40

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:



"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."

[rivaldo] 16/12/2019 13:52

Good to see DSCV tipped again on Master Investor:



"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."

[rivaldo] 15/12/2019 07:57

New interview with the CEO about "strategy, focus on growth markets and future acquisitions", aiming to double revenues and EPS in the next 4 years or so:

[albanyvillas] 13/12/2019 09:16

Looking a bit good

[rivaldo] 11/12/2019 09:13

Excellent - Panmure Gordon have initiated coverage today, with a Buy and a 615p target:

[rivaldo] 04/12/2019 06:55

Tipped on the Master Investor web site featuring Peel Hunt's increased 650p target price:



"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."

[onjohn] 03/12/2019 14:00

Dividend if you hold on 12 December

[rivaldo] 03/12/2019 13:50

Cheers penpont, reads very well.

And the share price is going rather well too - new highs now.

[rivaldo] 29/11/2019 07:26

Tipped as a Buy in the IC - subscriber-only unfortunately:

[rivaldo] 28/11/2019 15:34

More detail on the Peel Hunt upgrade to 650p:

"DiscoverIE Group's results for the first half of fiscal 2020 show the extent to which the company's strategy has matured, Peel Hunt says. The U.K. supplier of customized electronics continues to deliver steady organic growth against a tough backdrop, Peel Hunt says. This places DiscoverIE alongside industrial companies such as Spirax-Sarco Engineering, Halma, Oxford Instruments and Diploma as players in the sector that have shown high levels of resilience in these markets, the brokerage says. Peel Hunt raises its target price to 650 pence from 530 pence."

[rivaldo] 28/11/2019 11:12

Nice - Peel Hunt has hugely increased its target price to 650p (from 530p) and says Buy:

[eggbaconandbubble] 28/11/2019 08:35

If Boris gets a working majority the market will fly.

Discoverie will be leading the charge!

[rivaldo] 28/11/2019 07:43

Excellent interims as flagged - everything is nicely on course, high margin D&M work continues to rise, core markets are non-cyclical and growing, and the outlook is extremely confident:

"Since the period end, orders have continued ahead of sales, and with a record order book, a continuing high level of design wins and a pipeline of acquisition opportunities, the Group is on track to deliver full year earnings in line with our expectations."

[davr0s] 25/11/2019 18:48

Yawn - stocks can stay overbought for a very long time. It's a very poor indicator of statistically where price is going to go. They report this week and that is far more likely to determine where price moves next

[montynj] 25/11/2019 11:28

Stock is overbought..a buy around 480p