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Electrocomponents still struggling

Falling sales and margins sent shares in the distributor of engineering products down 5 per cent on results day
May 22, 2015

"The financial performance was not good enough and it's something we are determined to improve," said Electrocomponents chairman Peter Johnson. Despite investing heavily to capture more business online and make three-quarters of its products available to customers across the world, the global distributor of engineering products still posted a slump in revenues.

IC TIP: Sell at 237p

Management blamed weak sales in the competitive UK market. New products and strong growth in e-commerce saw sales in North America rise by a tenth to £303m, but that success weighed on margins, as did higher sales of low-margin semiconductors. Those factors, coupled with a strong dollar, weak euro and discounting to boost corporate account sales in the UK and Asia, drove gross margins down 1.3 percentage points to 44.6 per cent.

To counter these difficulties, new boss Lindsley Ruth plans to reduce complexity and increase customer focus. He reckons the launch of a new website later in the current financial year should expand the conversion rate of people buying products online. However, the group now has to contend with the departure of finance director Simon Boddie, which was announced alongside these numbers.

Broker UBS cut its forecast for adjusted 2016 pre-tax profit by 8 per cent to £78.7m, giving adjusted EPS of 12.8p.

ELECTROCOMPONENTS (ECM)
ORD PRICE:237pMARKET VALUE:£ 1bn
TOUCH:237-238p12-MONTH HIGH:292pLOW: 197p
DIVIDEND YIELD:5%PE RATIO:15
NET ASSET VALUE:84p*NET DEBT:45%

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111.1811418.011.00
20121.2712219.511.50
20131.248713.611.75
20141.2710116.311.75
20151.279616.011.75
% change-1-5-2-

Ex-div: 25 Jun

Payment: 28 Jul

*Includes intangible assets of £248m, or 56p a share