Farnell Electronics shares suspended

TOM STEVENSON

City Editor

Farnell Electronics, the Yorkshire-based electronics distributor, asked for its shares to be suspended yesterday at 679p, pending an unspecified announcement.

The move followed an article in the Yorkshire Post, suggesting the pounds 926m company was poised to make an acquisition which would substantially increase its size.

The company refused to comment further on its plans yesterday but a spokesman said an announcement would be made within a couple of days.

Industry-watchers were unsurprised by the prospect of a deal from Farnell, which has grown fast over the past three years to become one of the world's largest electronic distribution businesses.

Only two years ago, 90 per cent of Farnell's business was in the UK, but following the acquisition of Multicomponents, a rival supplier, it now makes 40 per cent of its sales overseas. As a result of that deal Farnell has become the world's eighth largest component distributor.

Recent moves in Singapore and the US were seen as toe-holds in potentially very lucrative markets.

Turnover at the highly successful company doubled between 1993 and 1995 from pounds 254m to pounds 514m while profits moved ahead during the same period from pounds 41.6m to pounds 59.2m.

When the company announced another record set of figures last October, analysts questioned what the company could do with its fast-increasing cash pile.

Despite spending pounds 37m on acquisitions during the first half of the year, Farnell still ended the period with over pounds 70m of cash, representing 38 per cent of shareholders funds. With interest rates falling, the pressure was on the company to find a way to use the funds to expand its successful catalogue-based distribution operation.

Like its rival Electrocomponents, Farnell has flourished on the trend for customers to pay slightly over the odds in return for a first rate, prompt distribution service. Together the two companies account for 80 per cent of the home market. Unusually for a wholesaling operation Farnell's catalogue business has margins in the high teens.

The formula has also succeeded overseas, where markets are more fragmented and less sophisticated. Australia and France are becoming substantial businesses, and Farnell is moving into the key US and Far East markets.