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magazineLatest acquisitions keep DiscoverIE on the right margin hike track
DISCOVERIE (DSCV) 434p
Gain to date: 6.9%
Original entry point: Buy at 406p, 14 February 2019
Enhanced growth prospects and reduced debt is how one analyst describes the latest situation for electronics engineer DiscoverIE (DSCV).
Last week the company forked out £15.9m on a pair of custom design engineering businesses – Hobart Electronics and Positek – with manufacturing in the US and Mexico.
The deals should provide cross-selling opportunities in time, plus some potential for stripping out operating costs.
Both Hobart and Positek underscore a key theme of our original investment idea – namely that DiscoverIE is stepping into higher margin projects through complex design and manufacturing rather than just distributing parts.
A £29m fundraise will help to pay down borrowings, taking net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) from approximately 1.9 to 1.5-times. That leaves plenty of headroom for additional bolt-on acquisitions as opportunities emerge.
The stock has made reasonable progress in the short time since we first flagged the investment opportunity yet DiscoverIE still trades at a 15% to 20% discount to peers.
SHARES SAYS: A clear vision and strategy to execute, analysts see 500p as a 12-month target for the stock. We think the upside could be greater.
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