The voyage of discoverIE Group PLC … back on course and full steam ahead

dicoverIE targets underlying earnings per share growth of 10% a year and it was hitting these targets with room to spare until the pandemic altered things dramatically

DiscoverIE Group PLC has come a long way since it changed its name from Acal PLC in November 2017.

The name change signified the transformation of the group over the preceding years into a higher margin business focused on design and manufacturing.

The name stands for “discover innovative electronics” so it is not just a trendy mixed-case name designed to irritate journalists and grammar purists.

At the time of the name change, the company was valued at around £160mln; less than four years later it is close to being a billion-pound company, with a market capitalisation of £920mln.

It has done so by sticking to a well-established game plan of augmenting organic growth with value-enhancing acquisitions and for much of the time it has been plain sailing.

“No plan survives first contact with the enemy,” the Prussian field marshall Helmuth von Moltke famously said and discoverIE found this out last year. The group, which targets achieving at least 10% growth in underlying earnings per share each year, had to rethink when it came into contact with “the enemy” – the enemy, in this case, being the COVID-19 virus and the effect it has had on the global economy.

Everything was proceeding according to plan between fiscal 16/17 and fiscal 18/19, with underlying earnings growth rates of 13%, 16% and 22%.

That growth slowed to 8% in fiscal 19/20 as the effects of the pandemic started to be felt; the group’s financial year-end is March so fiscal 20/21 was when the business was really hit hard by the slowdown in the global economy. Earnings per share growth that year declined by 14% but more importantly, the results revealed a strong recovery in the second half of the year, with the group boasting a record order book.

Since announcing those results on 3 June, the shares have risen by 50%, with the group continuing its habit of raising full-year expectations.

Acquisitions remain a key part of the discoverIE growth story. In the last 12 years, the group has acquired 18 specialist high-margin businesses that it has absorbed into its Design & Manufacturing (D&M) division, which now accounts for two-thirds of group sales.

Today’s acquisitions of US firm Logic PD Inc (known as Beacon EmbeddedWorks) and UK outfit Antenova fit the discoverIE template, having operating margins in excess of 20% and offering plenty of scope for cross-selling opportunities.

Demand for the group’s shares is so strong that when it sought to raise £45mln to partly fund the acquisitions, the City clamoured for more shares and the amount raised was lifted to £55mln.

The group said it retains a healthy pipeline of further acquisition opportunities.

“The earnings accretive acquisitions of Beacon EmbeddedWorks and Antenova continue our strategy of building a high quality, high margin international group that designs and manufactures differentiated and customised electronics. Both Beacon and Antenova have long-established track records of supplying high-quality products, mostly into our core target markets, and are therefore well-positioned to exploit a range of growth opportunities,” said Nick Jefferies, the group’s chief executive.

And so the voyage of discoverIE continues …