Electrocomponents: Credit Suisse raises target price from 210p to 280p upgrading to outperform.
9 Nov '12
Tempus writes that the phrase ‘high operational gearing’ is used to describe companies where fairly small changes in sales or costs have an overwhelming effect on profits. It is hard to think of a better example than Electrocomponents, the world’s biggest distributor of electrical and electronic bits and pieces. This is a well-known proxy for global economic performance because its goods are ordered in their millions, so the slightest slowdown has an immediate effect. In the first half to end-September, cost inflation was running at about 3%. Margins fell by 1.2% and the lower euro hit earnings from the Continent and thre were one and a half fewer trading days than in the previous first half. These are tiny changes, but together they meant that pre-tax profits were off by 30% to £41.5m on flat revenues. It is the ultimate cyclical stock, and on 12.5 times this year’s earnings, unless you think the world economy is set for a significant bounce, probably worth leaving for now.
8 Nov '12
Electrocomponents: Panmure Gordon reiterates sell rating and 175p target.
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