Components supplier Premier Farnell (PFL) plans to future-proof its business by embracing the digital economy. Management recognises a key risk is disintermediation, a process where suppliers and end-users transact together, squeezing out distributors. But the electronics marketing and distribution business is hoping to install itself into new parts of the supply chain, a move that could cement its value to customers.
The strategy is progressing well, according to CEO Laurence Bain, speaking after Premier’s half-year results (Sep 18). A slew of initiatives, including rising sales of development kits and a new online design centre are beginning to gain traction among its customers. Premier also bought US-based AVID Technologies to increase its capability at the front end of the design cycle.
Potential hazards include failure to reorganise the business effectively, sustainability of its dividend if cash flow were to falter and increasing competition. Analyst Andy Brown at N+1 Singer, who has a ‘sell’ on rating the stock, warns Premier’s ’markets remain challenging and visibility is low’.
At 189.6p the shares trade on a January 2015 price to earnings (PE) ratio of 13.2 and offer a prospective dividend yield of 5.4%.