The Investment Column: Premier fails to impress

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Premier Farnell, the electronics distributor, has hardly covered itself in glory since it paid pounds 1.9bn for Premier early last year. It issued a messily handled profits warning within a year, caused by a depressed US market and strong pound. The City has treated the company warily ever since.

Premier Farnell's shares, which sank from 751p before the warning in January to just 450p in April, have regained just a fraction of their lost ground.

Sadly, there was little to cheer about in yesterday's half-year results. The pre-tax figure of pounds 73.2m was towards the bottom end of expectations and the cautious tone of the statement had analysts scurrying to downgrade their full-year numbers. The result was a 24.5p fall in the share price to 526.5p.

Though Howard Poulson, Premier Farnell's chief executive, says the first phase of the integration has been completed, the group faces a number of difficulties. The strength of the pound, which knocked pounds 5m off interim profits, will slice pounds 2m off the second-half figure. Second, the UPS strike in America will knock pounds 1m off the second-half and, perhaps most discouraging of all, the all-important US market seems to be growing rather slowly.

All this makes the share price outlook decidedly unexciting despite management's upbeat mood. The group is continuing to invest, spending pounds 23m on working capital in the first half. Mr Poulson plans to build share in Europe and the Far East where the market for electronic component distribution is limited.

In America, the company is working to improve service levels and in Newark, the main US catalogue division, a new catalogue will be introduced for the first time in two years.

The downside here is that margins have been eroded by more than 2 percentage points by the increase in higher volume "special order" contracts.

With analysts downgrading full-year forecasts from pounds 160m to pounds 145m the shares trade on 20 times forward earnings. Too high given the uncertainty over future sales growth.