DiscoverIE reports higher revenue and earnings, narrower margin

(Sharecast News) - DiscoverIE Group shares fell almost 7% on Wednesday morning despite the customised electronics manufacturer reporting higher full-year revenue and earnings, as investors focused on margin pressure and a modest profit increase after a year of acquisitions and investment. The FTSE 250 group said revenue rose 5% to £443.3m in the year ended 31 March, from £422.9m a year earlier.

Organic sales increased 2%, including 5% growth in the fourth quarter, as an 18-month period of industrial customer destocking began to ease.

Orders rose 9% overall and 5% organically for the year, with organic order growth accelerating to 14% in the final quarter.

The order book stood at £165m at the year end, 2% higher than a year earlier and equivalent to about 4.5 months of annualised second-half sales.

Adjusted operating profit edged up just 1% to £61.0m, while the adjusted operating margin narrowed to 13.8% from 14.3%, reflecting investment in production, engineering and sales capacity to support future growth.

Adjusted profit before tax rose 4% to £51.9m and adjusted earnings per share increased 4% to 40.3p.

On a statutory basis, profit before tax rose 13% to £36.1m and diluted earnings per share increased 18% to 29.4p.

The share-price fall suggested investors were looking past the stronger order momentum and focusing instead on the lower margin, limited adjusted operating profit growth and the need for further execution before DiscoverIE reaches its medium-term target.

The group said it remained on track to achieve an adjusted operating margin of 17% by the 2029-30 financial year, supported by organic initiatives and recent higher-margin acquisitions.

Free cash flow was £36.6m, representing free cash conversion of 92%, ahead of the group's 85% target.

Net debt excluding lease liabilities fell to £80.5m from £94.3m, reducing gearing to 1.2 times adjusted EBITDA.

The board proposed a final dividend of 8.95p per share, up from 8.60p, taking the full-year dividend to 13.0p, a 4% increase on the prior year.

Chief executive Nick Jefferies said the group had delivered "another set of robust results", with profits and earnings reaching new highs and the business returning to strong organic orders and sales growth by the year end.

"Trading momentum improved through the year with final quarter orders increasing by 14% organically, sales increasing by 5% organically and with orders ahead of sales, giving us confidence as we start the new financial year," he said.

DiscoverIE announced three acquisitions in the past six months for a combined consideration of £95m.

Storm Interface, a UK maker of assistive human-machine interface products, was acquired in December, while Slovenian defence antenna specialist Trival completed in April and the planned acquisition of North American shielding and thermal management products maker 3Gmetalworx was announced in May.

The company said Trival and 3G would increase its exposure to defence, while Storm would add to its human-machine interface cluster.

All three businesses were described as having margins well ahead of the group's current margin target.

By division, Magnetics & Controls revenue rose 2% to £267.0m, but adjusted operating profit fell to £41.7m from £43.0m after growth in lower-margin magnetics was partly offset by earlier destocking in higher-margin controls.

Sensing & Connectivity revenue increased 9% to £176.3m, helped by acquisitions, while adjusted operating profit rose 7% to £31.4m.

DiscoverIE said the outlook for the current year was positive, with full-year adjusted earnings expected to be in line with board expectations.

First-quarter trading had started well, with strong order growth, further sales momentum and orders running well ahead of sales.

At 0846 BST, shares in DiscoverIE Group were down 6.87% at 724.55p.

Reporting by Josh White for Sharecast.com.

See latest RNS on Investegate