Best avoid Electrocomponents

Wincanton; Peacock
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The Independent Online

Half-year results yesterday from Electrocomponents, the giant electrical supplies distributor, were one big yawn. No catastrophic profit warning; no swathe of lay-offs. Trading is tough, naturally, but Bob Lawson, the chairman, has seen it all before. It's just the economic cycle, stupid.

At the top of the tech investment boom, Electrocomponents didn't believe it could last; amid the depths of the gloom, it doesn't believe this will last, either. It only took on temporary warehouse staff to satisfy the excess demand last year. This year they have been let go, and now the natural course of resignations and retirements will be sufficient to keep the company lean.

Mr Lawson said yesterday: "Our businesses are well positioned to respond rapidly if the cyclical recovery is brought forward by the stimulus from lower interest rates." The shares duly surged 42p to 494p, since the market has its sights just over the economic horizon.

Electrocomponents proved again that it has a robust business supplying mainly engineering customers with electronic and electrical bits and bobs, from hand tools and wiring to power supplies. Profit before tax was down 7.3 per cent to £49.6m on sales that were 3.7 per cent lower, but cash generation remained strong and the company was able to continue its recent practice of increasing the dividend by 15 per cent. The stock now yields more than 3 per cent.

The dent in profits was exacerbated by investment in the group's internet sites. More than 8 per cent of its UK sales are made online, and that rises to 30 per cent in the nascent Chinese market. A pan-European service is just being rolled out and should work to the company's advantage as it aims to snatch business from more established players in these markets, although the £7m it is spending this year may not be recouped for a while.

The e-commerce investment and the continuing push in Europe (where revenues grew 10 per cent in the first half) mean Electrocomponents offers attractive long-term growth. But it is less impressive as a short-term economic recovery play. Mr Lawson says the US – which suffered most of the profit slide in the first half – appears to have bottomed but demand from its more significant UK manufacturing customers is still deteriorating.

On a toppy 26 times this year's forecast earnings, the stock is best avoided for now.

Wincanton

There's a growing amount of money to be made transporting baked beans around the UK, and Wincanton is making it. The haulage and warehouse management group was demerged from Uniq earlier this year and yesterday revealed what it called "an encouraging start" as a separate company, thanks to new contract wins from the likes of Heinz, B&Q and Tesco. Turnover in the six months to 30 September grew 3.5 per cent to £366.4m and operating profit rose almost 10 per cent to £14.6m. A pension credit and one-off property gain swelled pre-tax profit to £15.4m.

As organic growth goes, that is a creditable result. It is likely that Wincanton will move into Europe within 18 months, but it seems content to let the worst of the economic slowdown pass before moving in or looking for acquisition targets.

In the UK, Wincanton professes itself comfortable with forecasts of more growth in the second half, and quietly confident for next year, too. That might be premature, but the group does have strong relationships – some going back 20 years – with many of the UK's blue-chip companies. It also has a solid pipeline of smaller deals and the shares, up 17p to 189p, trade on just 10 times this year's forecast earnings. Hold.

Peacock

Beautiful plumage is not something you would say about Peacock Group, the high street discount retailer, at the moment. After missing its profit targets last year the City lost faith and this once strutting company has started to look rather bedraggled. This look continued yesterday despite its fanning out a perfectly decent set of first-half figures.

Profits in the six months to 29 September were up 27 per cent to £5.8m, before exceptionals. Like-for-like sales were up 6.3 per cent on the previous year. The sting in the tail was the current trading statement. Sales to the end of September were strong (up 14 per cent) despite the attacks on the US. But the warm weather has taken its toll and like-for-like sales in the five weeks to 3 November were down 5 per cent on last year.

One of the plus points with Peacock is its supply relationship with Woolworths. Indeed a takeover by Woolies looks possible eventually.

But in the short term, the shares, up a penny to 105p yesterday, do not look attractive, despite full-year forecasts of £15.5m putting the stock on a forward price-earnings multiple of 9.

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