RBC Capital Markets has downgraded discoverIE Group PLC (LSE:DSCV) from ‘outperform’ to ‘sector perform’, arguing that a 50% rally since the end of March has returned the electronics components supplier’s valuation to its long-term average, leaving little room for further re-rating.
The bank kept its price target at 800p, just 50p above the current share price, reflecting a price-to-earnings ratio of 18x applied to its 2027 earnings forecast, in line with the stock’s 10-year average and a slight premium to RBC’s UK coverage average of 16.9x.
RBC upgraded discoverIE in April 2025 when tariff-driven market turbulence pushed the shares to a 30% discount to that 10-year average, creating what it saw as a clear buying opportunity.
The group delivered solid results for the financial year ending March 2026, broadly in line with consensus expectations, though RBC noted that underlying earnings before interest, tax and amortisation (EBITA) remained 4% below its own post-tariff forecast set a year earlier and 9% below its pre-tariff estimate.
The growth outlook for the year ahead is more encouraging, with RBC forecasting EBITA rising 18% in the financial year to March 2027, supported by the completed acquisition of Trival in April and the pending completion of 3G over the coming months.
However, roughly half of that EBITA growth is acquisition-driven rather than organic, and with higher financing costs diluting the benefit at the earnings per share level, RBC forecasts EPS growth of only 8%.
Organic momentum is nonetheless picking up, with orders growing 14% and sales 5% in the fourth quarter, and management flagging continued positive growth in the first weeks of the new financial year.
RBC forecasts organic revenue growth of 5% for the year and sees the group’s EBITA margin expanding steadily from 13.8% in 2026 to 15.7% by 2029, still short of management’s longer-term 17% target for 2030.
Net debt to EBITDA is expected to reach 1.8x by the end of the 2027 financial year following the acquisitions, leaving capacity for further bolt-on deals but probably not at the scale of recent transactions without an equity raise.