Time to buy Electrocomponents

House of Fraser starts to learn its lessons; Stash away shares in Lok'nStore storage group

Electrocomponents or Premier Farnell? The perennial question for investors in support services has been thrown into sharp relief by Farnell's annual results last week and, yesterday, a trading update by Electrocomponents.

Electrocomponents or Premier Farnell? The perennial question for investors in support services has been thrown into sharp relief by Farnell's annual results last week and, yesterday, a trading update by Electrocomponents.

The two fight toe-to-toe in the business of supplying engineers with everything from screwdrivers to hard hats. Electrocomponents also supplies the Ministry of Defence and the National Health Service, so is arguably a beneficiary of the Chancellor, Gordon Brown's, enthusiasm for diverting tax revenues into public services.

Last week's news from Farnell, that its North American arm was growing sales at a rate of 10 per cent a year, helped Electrocomponents shares up 3p to 339p. Yesterday, after brimming over to 347.75p at one point, they closed 11.75p higher at, wait for it, 339p, on word that US sales growth is "well into double digits".

"The market is confused," said David Hallam of Williams de Broe, sagely.

Electrocomponents sells a range of 300,000 products to 1.5 million engineers around the world. The UK market is now flat after shrinking, but growth has been surprisingly good elsewhere. As the chief executive, Ian Mason, said: "Since we announced our first-half results in November, the economic backdrop in our markets has improved."

Even the falling dollar has not been enough of a drag to prevent sales rising after adjusting for exchange rates.

Mr Mason forecasts that profits for the year ending this month will be up to £106m, prompting analysts to upgrade next year's projections to £112m.

That should produce a dividend of 5.5 per cent, earnings per share of 18.5p and a p/e ratio of 18.3. Farnell's comparable figures for the 2004 calendar year are a 4 per cent dividend and a p/e of 22. Both look expensive, but they are the type of well-run companies where the shares always look pricey. Farnell is a hold, but it is worth buying Electrocomponents before the market re-rates it.

House of Fraser starts to learn its lessons

House of Fraser is more than used to seeing its end-of-term essay splattered in red ink and being told to "try harder". In the past jokingly described as "House of Failure", the department store group spun off from Harrods has striven in vain to become teacher's pet. It seems to have spent as much time of late being bullied by prospective bidders as improving its grades.

While yesterday's full-year numbers hardly sent it to the top of the class, they did at least save it from yet another spell in the dunce's corner. The management worked hard in 2003 to slash £13m of costs, and expect to save another £6m this year. Lower cost pressures, from rent reviews to pensions, mean more of the company's sales should filter through to its bottom line.

Makeovers for city centre stores, such as the old Rackhams in Birmingham, and posh new shops in the likes of London's Square Mile, are helping to restore the group's jaded image. A further 450,000 square feet of more profitable new space is set to open over the next 18 months, giving some much needed momentum.

Although like-for-like sales are up just 0.7 per cent in the past seven weeks, that is better than some feared, and masks a 60 basis-point improvement in its gross margin. But few analysts believe this margin progression is sustainable, leaving most unwilling to hand out the gold stars. Pre-tax profits were up 19 per cent to £18.6m ­ after another hefty round of exceptional charges totalling £8.4m.

With Tom Hunter and the Icelandic company Baugur still hanging on to their shares (up 1p at 101.75p), so should you.

Stash away shares in Lok'nStore storage group

Lok'nStore is in the business of self storage centres, a sector that appears to have amazing growth prospects.

The company provides space for people to put their junk and excess belongings, or for small businesses to store documents and other stuff. Students, for instance, are a seasonal customer, storing their possessions as they get kicked out of halls each summer.

The US has more than 10 times the amount of self storage space per capita, suggesting that the growth prospects for the industry in this country will be limited only by the ability to find the right sites.

Lok'nStore announced an 11 per cent rise in turnover for the half-year to £3.13m. There was a small loss, of £42,000 but this is because the business is expanding and cash flow goes into investing in new sites. The established sites, which are mostly in the South-east, have healthy ebitdamargins of some 50 per cent.

The company has 18 stores, with Investec Securities, the broker, estimating these are worth 150p a share on a pure property valuation. But unlike larger rivals, Lok'nStore sees itself much more as a retail rather than a property play.

The company's shares, which are fairly illiquid, closed unchanged at 111.5p. Worth holding.