Britain is no longer the industrial powerhouse it once was, having ceded its dominance in manufacturing to the US, Germany, Japan, and more recently, India, China and Taiwan.
It has instead leaned heavily on developing a service-based economy. Yet, there are pockets of manufacturing excellence that continue to thrive and innovate, largely unnoticed by the broader market.
While aerospace and defence giants such as Rolls-Royce and BAE Systems capture much of the limelight, other sectors quietly foster world-class expertise.
Weir Group, which provides solutions for minerals and mining technology markets, is a stalwart of the UK industrial sector.
Companies such as Weir Group, the pump specialists, and IMI, the industrial engineering firm, represent stalwarts of British industrial ingenuity.
Beneath these larger entities lies a cadre of smaller but equally impressive companies that have honed their operations to excel in profitable, highly specialised niches.
Up and coming
Among them are Spirax-Sarco, Spectris, and Rotork, firms that have consistently delivered shareholder value through strong, niche-driven business models.
You could also add to the list discoverIE Group, an international designer and manufacturer of customised electronic components for industrial use.
It supplies sensors, magnetic devices, controls, and connective equipment to a blue-chip customer base that includes global industrial titans such as ABB, Abbott, and Vestas.
Under the leadership of chief executive Nick Jefferies, discoverIE has expanded both organically and through a series of well-executed acquisitions. This strategy has allowed the company to outperform GDP growth across the economic cycle.
Central to its approach has been enhancing operating margins, largely through value-accretive dealmaking. According to the company’s latest figures, its operating margins have expanded by 8.2 percentage points between 2015 and 2024.
By the end of the current financial year, margins are expected to hit 13.5 per cent, with an ambitious target of 15 per cent further down the line.
discoverIE Group is an international designer and manufacturer of customised electronic components for industrial use.
Doubling up
This financial discipline, paired with steady growth, has helped discoverIE double its per-share earnings every five years, securing its place as a fixture in the FTSE 250.
At a recent capital markets day, CEO Jefferies laid out plans to ramp up innovation, accelerate its acquisition strategy, and tap into new international markets.
The presentation was well received by analysts and investors, though the company’s share price, down 18 per cent over the year, suggests the market remains cautious.
This decline may reflect broader concerns impacting manufacturers across sectors—namely, the issue of de-stocking.
In simple terms, de-stocking occurs when customers hold off on placing new orders as they work through their existing inventory, typically in a bid to manage working capital.
This phenomenon often disrupts sales, as demand appears to weaken temporarily.
Destocking pressure easing
Last Tuesday’s trading update from discoverIE suggested that de-stocking pressures were beginning to ease, albeit not entirely.
‘Order levels have stabilised, and design wins, a key forward-looking barometer, increased strongly,’ the company noted, indicating early signs of recovery.
Although sales were down 4 per cent compared to the same period last year, the decline slowed toward the end of the quarter.
The statement also brought positive news on the acquisitions front. HiVolt, the company’s most recent purchase, is performing as expected, along with five other acquisitions made over the past 14 months.
Meanwhile, the company’s gearing ratio—a measure of financial leverage—has fallen to 1.45 times earnings, below the lower end of its 1.5-2 times target range, providing additional financial flexibility.
With a strong pipeline of design wins, solid cash flow, and a disciplined acquisition strategy, discoverIE appears well-positioned to navigate any lingering market challenges and continue its steady, long-term growth.
The company operates in fast-growing sectors, with 30 to 40 per cent of its revenue generated from transport, renewable energy, and medical technology, and a similar share from industrial and connectivity applications.
Long-term trends
It is set to benefit from several long-term trends, including the shift to electric solutions in industries driven by automation and carbon reduction targets, as well as the expansion of rail transport.
Increased investment in renewable energy and advancements in artificial intelligence (AI) and sensor technology in healthcare are also likely to boost its business.
Given this backdrop, the current share price weakness could present an opportunity. However, opinion in the City is divided.
Shore Capital, for instance, believes that despite the company’s long-term potential, discoverIE shares remain somewhat overvalued at current levels.
On the other hand, Peel Hunt values the stock at 1,000p, a 56 per cent premium to the current price, while Stifel is a ‘buyer’ up to 975p.
It adds: ‘With valuations back to modest levels, and the group trading profitably through the trough, we think the shares look attractive here.’
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