Join our community of smart investors

Electrocomponents shares tumble again

Shares in Electrocomponents fell 7 per cent following weak group sales and news that the boss is stepping down
November 14, 2014

Currency headwinds and stagnant European markets hit revenues at Electrocomponents (ECM), whose chief executive, Ian Mason, announced his intention to step down after 20 years with the firm. The global distributor of engineering products reported that declining French and UK markets offset buoyant growth in North America, leaving group sales below expectations.

IC TIP: Sell at 225p

One of Electrocomponents’ four strategic initiatives is to make three-quarters of its products available across the globe. As such, management was keen to highlight 10 per cent underlying sales growth in the US. But the US market is less profitable, so growth there cut the group's gross margin. So too did better sales of lower-margin products like semiconductors and increased discounting in the UK and Asia Pacific.

According to Mr Mason, who steps down in March, investors should still be encouraged by the group’s efforts to drive faster sales growth during a period of economic instability. Aside from the ambition to deliver more products, another key focus is e-commerce: the group wants 70 per cent of transactions to be made online. The share is already almost 60 per cent, suggesting that the group's massive investments in digital technologies are paying off.

Broker UBS cut its forecast for pre-tax profit before amortisation by £5.7m to £78.6m for the current financial year, giving a lower adjusted EPS forecast of 13p.

ELECTROCOMPONENTS (ECM)
ORD PRICE:224pMARKET VALUE:£987m
TOUCH:224p-226p12-MONTH HIGH:307pLOW: 200
DIVIDEND YIELD:5.2%PE RATIO:12
NET ASSET VALUE:83p*NET DEBT:42%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201363544.67.25.0
201461655.59.35.0
% change-3+24+29 

Ex-div: 4 Dec

Payment: 9 Jan

*Includes intangible assets of £225.7m, or 51p a share