ShoreCap upgrades rating for Discoverie but sees better value elsewhere

The broker said that, with shares having fallen 13% (prior to Tuesday) since it downgraded the stock in July, its valuation is up with events.

First-half results from DiscoverIE were in line with market expectations expectations following a detailed trading update in October, with revenues down 5% at £211m and adjusted operating profits down just 2% at 29.1m, as the bottom-line decline was tempered by a 1.4 percentage-point increase in the organic gross margin.

"We lower our revenue forecast for FY25F by 2% with Q3 sales still down organically YoY but maintain our profit forecasts. We see less risk of a profit downgrade for FY25F following a strong margin improvement in H1 and guidance of a further uplift for the full year," Shore Capital said.

As of Monday's closing price of 633p, DiscoverIE's shares trade at 16.8 times Shore Capital's earnings forecasts.

The broker said the companies is "well placed to benefit from a range of long-term trends", with the business exposed to attractive end markets, "including increased electrification in industrial applications (driven by increased automation and carbon emission reduction targets) and rail transportation, increased investment in renewable energy and an increase in AI and sensing in the medical sector".

"However, we believe these exposures are captured in the equity rating and see more upside elsewhere, and view Renew and Spectris as attractive alternatives."

By 1110 GMT, the stock was up 16.8% at 739.5p.