EDISON INVESTMENT RESEARCH LIMITED (LON:KEFI) discoverIE Group (DSCV): Another brick in the yellow wall
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Edison Investment Research Limited
London, UK, 10 December 2020 discoverIE Group (DSCV): Another brick in the yellow wall discoverIE reported resilient H121 results considering the expected drop in demand due to COVID-19. Having taken action at the start of the pandemic to reduce costs and conserve cash, the company was able to minimise the impact of the revenue shortfall on operating profit and pay down a substantial amount of debt. With order intake and design win activity now moving in the right direction, the company is well positioned to resume its growth path. While we have reduced our forecasts to reflect the risk from ongoing lockdowns, the reinstated dividend and resumption of M&A underline management's confidence in the outlook.
The stock has bounced back by 60% from the low it reached in March and is up 6% year to date. The stock trades at a c 18% discount to its peer group on a FY21e P/E basis, down from 23% when we last wrote. Aside from continuing recovery in customer demand, we view the key trigger for earnings and share price upside to be progress in increasing the weighting of the business towards the higher-growth, higher-margin D&M business, which in turn should move the company closer to its 12.5% medium-term operating margin target. The stock is supported by a dividend yield approaching 2%.
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1154201 10-Dec-2020