“discoverIE Group plc’s current share price of £6.04 may exceed its estimated intrinsic value by 21%, according to a two-stage discounted cash flow model projecting future free cash flows. While recent trading updates show modest sales growth and strong order books, analyst targets suggest upside potential, contrasting with the valuation indicating overpricing.”
Valuation Analysis A detailed discounted cash flow (DCF) assessment reveals that discoverIE Group plc’s shares might be overvalued at their current level. Using a two-stage growth model, the analysis projects free cash flows over the next decade and applies a terminal value thereafter. Future cash flows are discounted back to present value using an 11% cost of equity, reflecting the risks associated with the company’s operations in the electronic components sector.
The model assumes analyst-provided estimates for the initial years, transitioning to extrapolated growth rates that taper off. A conservative terminal growth rate of 3.0%, aligned with long-term bond yields, caps the projection. This results in an equity value of approximately £480 million, translating to an intrinsic value per share of £5.00. Compared to the prevailing market price of £6.04, this suggests a 21% premium, implying that investors may be paying more than the underlying fundamentals justify.
Here’s a breakdown of the projected free cash flows and their present values:
| Year | ProjectedFreeCashFlow(£m) | PresentValue(£m) |
|---|---|---|
| 2026 | 33.1 | 29.7 |
| 2027 | 38.2 | 30.9 |
| 2028 | 43.1 | 31.3 |
| 2029 | 44.2 | 28.9 |
| 2030 | 45.5 | 26.7 |
| 2031 | 46.8 | 24.7 |
| 2032 | 48.1 | 22.9 |
| 2033 | 49.5 | 21.2 |
| 2034 | 51.0 | 19.6 |
| 2035 | 52.5 | 18.1 |
The total present value of these 10-year cash flows stands at £254 million, with the terminal value contributing the remainder to reach the overall equity valuation.
Recent Performance Highlights The company, a specialist in customized electronics for industrial applications, has demonstrated resilience amid varying market conditions. In the first half of the fiscal year ending September 2025, group sales rose 3% at constant exchange rates, with organic growth of 0.5%. Acquisitions bolstered this figure by an additional 2.5%. Orders surged 5% at constant rates, particularly strengthening in the second quarter with 13% growth.