British manufacturing excellence continues to thrive in niche sectors, with discoverIE Group PLC (LSE:DSCV) emerging as a notable example. This international designer and manufacturer of customized electronic components has consistently outperformed GDP growth across various economic cycles, driven by its strategic expansion and focus on improving operating margins. Under the leadership of Chief Executive Nick Jefferies, discoverIE has adopted a dual strategy of organic growth alongside well-executed acquisitions. This approach has led to impressive results, with operating margins increasing by 8.2 percentage points between 2015 and 2024. The company aims to achieve a 13.5% margin by the end of the current financial year, with a further ambitious target of 15% on the horizon.
DiscoverIE’s financial discipline and steady growth have allowed it to double its per-share earnings every five years, solidifying its position in the FTSE 250. At a recent capital markets day, Jefferies outlined plans to enhance innovation, accelerate acquisitions, and explore new international markets. Despite a positive reception from analysts and investors regarding the presentation, the company’s share price has seen an 18% decline over the past year, reflecting broader market concerns about destocking in the manufacturing sector.
A trading update from discoverIE on Tuesday indicated that destocking pressures are beginning to ease. While sales were down 4% compared to the same period last year, the decline slowed towards the end of the quarter, with the company reporting stabilized order levels and a significant increase in design wins, a crucial forward-looking indicator. DiscoverIE’s recent acquisition of HiVolt is performing as anticipated, alongside five other acquisitions made in the past 14 months. The company’s gearing ratio has decreased to 1.45 times earnings, falling below its target range and providing additional financial flexibility for future growth opportunities.
With 30-40% of its revenue generated from transport, renewable energy, and medical technology, discoverIE is well-positioned to benefit from long-term trends such as the shift towards electric solutions, increased investment in renewable energy, and advancements in artificial intelligence and sensor technology in healthcare. While opinions in the City remain divided on the stock’s valuation, some analysts see potential upside. Peel Hunt values the stock at 1,000p, representing a 56% premium to the current price, while Stifel rates it a ‘buy’ up to 975p. As discoverIE navigates market challenges and pursues its growth strategy, investors may find the current share price weakness an attractive entry point for this resilient British manufacturer.
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