Premier Farnell will struggle to impress
Friday 17 June 2011
Our view: Avoid
Share price: 250.4p (-24.2p)
On the face of it, Premier Farnell, the distributor of electrical products, is doing OK. Yesterday, the company reported adjusted pre-tax profits of £28.5m, up 13 per cent, on adjusted revenues of £252.5m, up 8 per cent. The "adjusted" is there because the company has stripped out the contribution of of TPC Wire & Cable, which was sold at the start of the quarter, from the comparisons.
The performance of the UK, which showed revenues up 16 per cent, and the US, where revenues were up just over 5 per cent but profits surged by 52 per cent thanks to a sharp improvement in margins, caught the eye.
But amid these rosy-looking figures are some sharp thorns. Overall, adjusted profits and revenues fell some way short of the City's consensus forecasts. Hence the shares' steep dive yesterday.
Europe looks all right but analysts had expected better, and then there's Asia-Pacific, where revenues actually fell 3.7 per cent. China and India are motoring along like one would expect but there are problems in Singapore and Malaysia, which have dragged the figures down.
At the end of last year, we advised investors to take profits at 280p – Premier Farnell naturally benefited hugely from the first stages of the economic recovery as companies rushed to restock inventories.
But we highlighted concerns that the going was going to get tougher and growth would inevitably slow at Premier, leading to a flat, or declining, share price. So it has proved, and the company is going to find it harder to produce exciting numbers over the coming months because they will be compared against some very good quarters.
The relatively poor performance, particularly in the all-important Asian region, this time round only heightens our concerns. The shares trade at about 13.5 times forecast full-year earnings, falling to about 12.5 times 2012 levels. That's in line with historic multiples, though cheaper than rival Electrocomponents, with a serviceable yield of 4 per cent. Given our concerns and yesterday's statement, however, they look fairly valued. We'd keep avoiding.
Our view: Buy
Share price: 287.5p (no change)
Even a true William and Kate – sorry, Duke and Duchess of Cambridge – obsessive is unlikely to be aware of the role that was played by Victoria in April's royal wedding, with the Kidderminster-based group supplying the red carpet which ran through Westminster Abbey on our future king's big day.
On Wednesday, the floor coverings manufacturer revealed its preliminary results, and – aside from gaining the regal seal of approval – it conceded that in the UK it was seeing the "toughest environment... for years".
Despite this, its revenues in this country rose by 9 per cent, helped by a sales jump of over 25 per cent in the past three months alone. Its larger Australian market, meanwhile, posted an increase in revenues of just 2.1 per cent. Although that was behind the performance at home, Victoria did manage to improve its margins down under. We would also note the impact of natural disasters in Australia and New Zealand.
The overall result was a 77 per cent rise in pre-tax profits, justifying Victoria's statement in May that its figures would come in ahead of expectations. Given the economic pressures on the British consumer, plus cost pressures, there are reasons to be cautious, but there is enough here to suggest that Victoria can hold its own, despite the rocky macro backdrop.
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