Bottom Line: Farnell underrated

SHARES in the electronics distributor Farnell barely moved yesterday. The stock rose 1p to 580p but even taking account of the falling market overall this appears to be an ungenerous reaction.

Pre-tax profits, ahead of expectations, rose 39 per cent and the dividend rose 19 per cent.

Farnell's main business is distributing thousands of different electrical gadgets. It acts as a middleman between manufacturers who are happy to contract out marketing and users who are willing to give away margin to secure quick and reliable delivery.

Farnell has been helped by recovery in the UK. Looking ahead, it has Multicomponents, a distributor based on the Continent, which it bought in November.

Multicomponents has annual sales of pounds 150m but an operating margin of 3 per cent against Farnell's 10 per cent.

Analysts expect current year profits of pounds 60m, putting the shares on a prospective p/e of 20 times but Farnell deserves the premium.

Even with a gross yield of 1.6 per cent the shares have attractions.