MIDAS SHARE TIPS UPDATE: Electronics firm DiscoverIE plugs into profit to rise 75%
In 2009, when Nick Jefferies joined Acal, it was an electronics distribution firm, valued on the stock market at £24million.
Since then the group has shifted focus, changed name and soared in value to £310million.
Now called DiscoverIE (IE stands for innovative electronics), the group has moved into the design and manufacture of specialist components as making goods from scratch tends to be much more profitable than just distributing them.
Rise: Midas recommended the shares in 2014 , when they were £2.32 – today they are £4.07
Jefferies also focuses on sectors with long-term growth prospects, such as healthcare. The strategy has served DiscoverIE well.
Midas recommended the shares in 2014, when they were £2.32. Today, they are £4.07 – a 75 per cent rise in value over the past four and a half years – and should continue to increase in value.
Jefferies has lasted longer than most chief executives of listed companies, and he remains both enthusiastic and ambitious. Between 2013 and 2018, DiscoverIE’s pre-tax profits doubled.
Jefferies wants to do the same again by 2023 and is well on his way to that target, reporting strong interim figures in December and a confident trading statement at the end of last month.
The firm’s products are hugely varied, ranging from mini-computers that track and control meat lorries to transformers that make sure operating theatres can work if there is a power cut.
The firm even makes sensors in a factory in Towcester, Northamptonshire, that change the suspension of Formula One cars.
Under Jefferies’ watch however, DiscoverIE has not just shifted away from distribution, it has also become more of an international business.
Today, more than 85 per cent of profits come from outside the UK, particularly northern Europe – Germany, the Netherlands and Scandinavia – and the US.
This broadens the firm’s customer base and makes it considerably more resilient to local economic cycles.
Customers include multinationals such as Siemens, Rolls-Royce and Airbus, as well as hundreds of smaller companies.
No single client accounts for more than 4 per cent of turnover – which again makes DiscoverIE a more robust business than it was before.
The company has grown both organically and through a series of acquisitions.
Jefferies has bought 13 businesses in the past decade and now aims to buy about two a year, always looking for high quality, well managed firms producing niche electronic components.
Brokers expect a 10 per cent increase in turnover to £428million for the year to March 31, 2019, with profits rising 27 per cent to £27.7million. A dividend of 9.5p is pencilled in, up from 9p last year.
Midas verdict: DiscoverIE has soared in value during Jefferies’ stewardship and investors have benefited. But there should be more to come. At £4.07, the shares remain attractive.