Specialist electronics maker DiscoverIE (DSCV) posted a positive trading update for the year to March 2026. Activity across the group accelerated in the final quarter, resulting in ‘a strong sequential increase’ in sales and orders.
Strong demand
The firm said its Magnetics & Controls division, which represents around 60% of sales and earnings, saw a strong pick-up in demand. Customers in the industrial and healthcare sectors were particularly active, and Control orders were up sharply for the third quarter running.
The Sensing & Connectivity division, which makes up around 40% of sales and earnings, made ‘encouraging progress’. Orders were particularly strong in the industrial, security and wireless segments,
Group orders increased by 15% on a LFL basis in Q4, while sales grew 5% on a LFL basis. The firm noted customers were increasing both their short-term demand and extending order periods.
For the FY to March, orders were up 5% LFL, while sales were up 2% on a LFL basis with 3% growth from acquisitions. Gross margins were ‘robust’, reflecting the strength of the firm’s differentiated value proposition.
In February we published a ndetailed note on DiscoverIE explaining why we think the shares are cheap. Today’s trading update reinforces our view, and the fact orders are outpacing sales bodes well for future growth.
One of the knock-on effects of the Middle East conflict has been for companies to re-evaluate their supply chains. Inventories can no longer be managed on a ‘just-in-time’ basis, so companies are stocking up on essential components.
Most of DiscoverIE’s customers have been dealing with the firm for many years, making it a trusted partner. That means it has better visibility over future orders and sales than some other industrial companies.
In terms of valuation, at 620p the shares are trading on 15.4 times FY26 earnings and 14 times FY27 earnings. That is around one and a half SD (standard deviations) below its historic average valuation.
In our base case scenario, the shares revert to one SD below the mean by March 2027 to trade at £11. In our bullish scenario, the shares fully mean-revert by March 2028 and trade closer to £19.
Read the press release here: https://discoverieplc.com/investors/overview/default.aspx
Disclaimer: The author (Ian Conway) owns shares in DiscoverIE.
