22nd Dec 2022 18:04
(Alliance News) - discoverIE PLC on Thursday announced it had acquired Magnasphere, a US-based company that designs and manufactures magnetic sensors and switches for industrial electronic purposes.
Analysts at Edison said the deal fit well within the group's strategy, providing it strong operating margins, good growth prospects, and further access to international markets.
The Surrey-based maker of customised electronics said it will pay out USD22 million on a debt-free, cash-free basis before expenses, funded from existing debt facilities.
The newly acquired business will operate within the Variohm cluster in the Sensing & Connectivity division.
discoverIE said the acquisition would be immediately accretive to underlying earnings and underlying operating margin.
Analysts at Edison estimate the deal is likely to improve the firm's 2024 underlying operating margin by around 0.3 percentage points to 11.5% and 2024 earnings per share 1.8%.
Shore Capital also increased its forecasts for the firm following news of the acquisition. It raised its 2024 revenue forecast by GBP6.5 million and its adjusted earnings before interest and taxation forecast by GBP1.8 million as a result.
"We continue to believe that, under a bullish scenario, the company can achieved 50 pence earnings per share by its financial 2025 if it meets its target for that year and continues to make value accretive acquisitions, which we believe it can self-fund," it added.
Shares in discoverIE finished 0.6% lower at 727.00 pence on Thursday in London. In the year-to-date, the stock was down 31%.
Shore Capital noted that the shares had fallen by that much in the year-to-date following "an exceptionally strong" share price performance in 2021, as well as in prior years.
It also said that discoverIE trades at the upper end of its peer group for electrical equipment specialists on a 2023 enterprise value/earnings before interest, tax, depreciation and amortisation basis.
However, based on Shore Capital's discounted cash flow model, there are limited indications that there is an upside to the firm's current share price. Analysts at the capital markets firm pointed out that this gave "no credit" to the firm's "excellent" ability to make value accretive acquisitions.
Furthermore, Shore Capital said, discoverIE is better placed than most industrial peers at passing on increased costs to customers, given its customised solutions and the fact that its products are a relatively small portion of customers' budgets.
Beyond that, the capital markets firm said the company is well placed to benefit from a range of long-term trends, such as increased electrification in industrial applications and rail transportation. It also eyed increased investment in renewable energy and an increase in artificial intelligence and sensing in the medical sector as a potential upside for the firm.
Nonetheless, Shore Capital said that, given the valuation against its peers, it believes it is appropriate to maintain its 'hold' recommendation.
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2022 Alliance News Ltd. All Rights Reserved.
Related Shares:
DiscoverIE