How are energy investors positioned?
Investing.com -- Shares of Discoverie Group PLC (LON:DSCV) climbed 5.8% on Tuesday following an upgrade by RBC analysts who pointed to the company’s resilience amid tariff risks and its potential for organic growth.
The analysts upgraded the stock to Outperform, citing its approximate 30% discount to its long-term price-to-earnings (P/E) average and the expectation that discoverIE will outgrow its U.K. peers organically in the medium term.
The company, which has faced a challenging 18 months with organic sales turning negative in the second half of fiscal year 2024 and forecast to remain down year-on-year (YoY) in the second half of fiscal year 2025, saw its shares gain despite these headwinds.
Analysts believe that while tariff-related uncertainties may slow the speed of cyclical recovery, the downside risks are relatively limited, forecasting a modest growth of 2% versus the prior estimate of 5%.
In terms of financial performance, discoverIE’s operating margins for fiscal year 2025 are expected to exceed the target of 13.5%, with a 15% target for 2028 coming into view.
The analysts forecast no margin progress in 2025 due to potential tariff headwinds, but also note this may be a conservative estimate. The company’s management has indicated that a balance of organic and inorganic growth could contribute to achieving the 15% margin target.
The company’s stock is trading at a significant discount, with the current P/E of 12x fiscal year 2026 earnings compared to a 10-year average of 18x.
RBC’s updated price target of 600p is based on a target P/E of 15x fiscal year 2026 earnings, still a 20% discount to the 10-year average. This slight premium to UK peers comes after discoverIE underperformed the UK Engineering peer group by 7% over the last six months and by 12% over the last three months.
The company’s ability to pass on costs and its active balance sheet strategy, including mergers and acquisitions that have historically added around 3% per annum to sales growth, are also factors underpinning the positive outlook.