The Investment Column: Farnell finally on the turn
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.The tide seems to be turning for Premier Farnell, the distributor of specialist electronic components, which yesterday released the first of a series of quarterly trading reports.
This is the first time in almost two years that a major statement from Farnell has not resulted in a flurry of brokers' profit downgrades.
Each of the company's operating divisions is increasing sales for the first half of the year, although sterling's strength will dent overseas profits by pounds 5m.
News of growth, which sent the shares up 4p to 536.5p, is music to investors' ears. Farnell's management rapidly lost favour with the City last year after being widely criticised for overpaying in its pounds 1.9bn bid for US rival Premier, funded by a rights issue at 540p.
To add to the pain, a bungled profits warning in January this year sent the recovering share price diving from almost 700p. The strong pound has compounded Farnell's traumas, with 70 per cent of its profits from overseas.
Now with the integration of Premier on track and the market in electronic components looking firmer after a weak year, shareholders might now consider this a cheap stock. After all, no one ever argued that buying Premier was strategically wrong.
There are clear cost savings to be had from combining catalogues of components and, compared to volume distributors such as Abacus Polar, specialist component players such as Premier Farnell, now a major force in the sector, can achieve juicy margins.
Compared to rival Electrocomponents, which trades on a 50 per cent premium to the market, Farnell trades on a much cheaper 5 to 10 per cent premium.
Premier Farnell's share price has improved in the past week as the pound has weakened and the emergence of new buyers has given further cause for hope. Within the past month, two US institutions have bought more than 3 per cent of the shares each.
Merrill Lynch reckons Farnell could grow faster than Electrocomponents in 1999, and is forecasting pre-tax profits of pounds 156m and earnings per share of 28.2p for the current year. On that basis, Farnell is on a forward multiple of 19. Not bargain basement, but good value for the sector.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments