The Investment Column: Electrocomponents' worldwide popularity makes it good value

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The Independent Online
ALL THE world loves Electrocomponents, the highly rated electronics distributor, which delivers everything from semiconductors to "Way Out" signs under its RS brand. All the world, of course, except for those contrarians, the French.

The slowdown in the rate of sales growth there - still 7 per cent - was the only worry yesterday as Electrocomponents demonstrated again why it commands a premium over its rival Premier Farnell.

Germany and Italy continued to strengthen, lifting sales by 11 per cent in the half year. Admittedly, the group says the slowdown in French growth seems to have stopped. But the group's French customers will suffer when the 35-hour week is introduced. France accounts for about 10 per cent of group sales.

Elsewhere, the story was encouraging. The UK business, around 80 per cent of profits, looks less concerning than it did. Despite the strength of sterling, sales are showing signs of strengthening. The group has been reorganising its activities. Since March, Internet sales have doubled as a percentage of the whole to 2 per cent.

Elsewhere, Allied Electronics, the American business acquired in July from Avnet, one of the group's suppliers, is performing better than expected. Electrocomponents remains on track to launch a partnership with Avnet in Europe in the first half of 2000 - Avnet will pass low-volume business to Electrocomponents in return for high-volume deals.

And in Japan, Electrocomponents' new operations posted maiden sales. China and South-east Asia showed strong growth.

On the downside, profits tumbled at the small UK Pact business, which supplies independent retailers struggling to compete with the major supermarkets. The group sees no signs of recovery near-term.

Underlying sales, stripping out the Allied acquisition, fell in the period by 2 per cent and profits fell 4 per cent. The trends are now running in Electrocomponents' favour and, unlike rivals, Electrocomponents has exposure outside the UK and US.

Analysts expect pre-tax profits of pounds 114m and earnings of 18.6p per share, putting the shares, up 28p at 583p, on a forward price-earnings ratio of 30. Given the barriers to entry to Electrocomponents' markets, the hefty rating is justified and the shares remain good value.