Investment: Farnell in the doldrums

FOR THE past two years Premier Farnell has been a case study in the destruction of shareholder value. Since the ill-fated pounds 1.85bn acquisition of Premier of the US in 1996, the electronic components distributor has performed abysmally, hit by a mixture of tough market conditions and management's ineptitude in merging the two businesses.

These woes were compounded by a flurry of profit warnings and the acrimonious departure of Howard Poulson, the chief executive.

The share price has reacted accordingly, losing almost 70 per cent of its value to Thursday's all-time low of 226.5p. This sorry tale continued yesterday with the release of a trading statement which showed a 3 per cent fall in sales to pounds 364.9m.

Premier blamed the decline on tough conditions in its two key markets, the UK and the US. In Britain sales have been hit by the downturn among manufacturers - Premier's main customers - while in the US the electronics industry has been in the doldrums because of oversupply and Asian crisis- hit demand.

These sound like plausible reasons, but they are not going to go away in the short term. Indeed, manufacturers' plight in the UK will deepen in the coming months, while Asia and oversupply are certain to remain an issue in the US.

The company maintains that its new chief executive, former ICI man John Hirst, is carrying out a strategic review which will resurrect the company's fortunes. The shares are on 11 times 1998 expected earnings of around pounds 120m, after bargain hunters forced a 6.5p rise to close at 233p yesterday.

With more uncertainty to come, they are no more than a hold.