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Electrocomponents still evolving

The tangible benefits of the self-help measures are becoming increasingly obvious, but the components distributor is still pursuing in-house efficiency initiatives
May 23, 2017

We've seen some strong returns among the March year-end financial results, but few companies have fared better than Electrocomponents (ECM) over the period. Full-year revenues were bolstered by £140m in positive currency translations, but disregard these and underlying operating profits were still up by over a third to £133m on a 180 basis point rise in the margin. The industrial electronics components distributor has gone back to basics, re-prioritising customer and supply network relationships, while increased focus on the purse strings means it is on track to deliver £30m in annualised cost savings by next March.

IC TIP: Hold at 554p

Those savings, along with a drop in capital expenditure and improved inventory turnaround, underpinned an 88 per cent rise in free cash flow and a near-one-third reduction in net debt. As a consequence, net debt as a proportion of cash profits (Ebitda) has fallen to a multiple of 0.7. Increased discipline on the cost front is also reflected in a marked increase in working capital as a percentage of sales. The combined gross deficit of the defined-benefit and retirement indemnity schemes at £105m is down by around £30m since September, but is still in advance of the £43.3m liability from the previous year-end, reflecting the intervening fall-away in long-term gilt yields.

The group improved profit margins across its geographies and halved the operating loss at its Asia-Pacific business, while increasing market share in Northern Europe and North America on the back of marketing initiatives. Management indicated that the positive underlying trends that gathered pace through the second half have continued into the early part of the current accounting year.

HSBC expects pre-tax profits of £148m for the March 2018 year-end, with diluted EPS of 24.2p, against reported figures of £127m and 20.9p in 2017.

ELECTROCOMPONENTS (ECM)
ORD PRICE:554pMARKET VALUE:£2.45bn
TOUCH:553-555p12-MONTH HIGH:562pLOW: 236p
DIVIDEND YIELD:2.2%PE RATIO:27
NET ASSET VALUE:88p*NET DEBT:29%

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131.2486.713.611.75
20141.2710116.311.75
20151.2796.116.011.75
20161.2934.95.011.75
20171.5112720.912.30
% change+17+264+318+5

Ex-div: 15 Jun

Payment: 26 Jul

*Includes intangible assets of £260m, or 59p a share.