Electronics distribution specialist Acal (ACL) gains 4.4% to 256p on news it has sealed the DKK39 million (£3.7 million) acquisition of Danish magnetic parts supplier Flux.

Flux, which has a division supplying parts for spacecraft, is the latest in a string of deals which have seen Acal seek to establish itself as a specialist player in an increasingly commodified industry.

'The investment case for Acal centres around its continuing push towards specialist product and distribution,' says Andy Brown at investment bank Sanlam Securities.

'Through its Custom Distribution operations it has a large customer base that provides a significant cross-selling opportunity.

'European manufacturing remains a key macro driver but the company has a number of self-help opportunities in the meantime.'

Flux will make a limited contribution to earnings in Acal's current financial year, which runs to 31 March 2015, according to Brown.

'Management say that the deal is immediately earnings enhancing but we think for 2016 estimates this gets lost in the rounding, post-integration costs,' Brown writes.

'We need to firm up forecasts but would expect to add £0.2-0.4 million to 2017 estimates, equivalent to a 1-2% upgrade.'

Acal trades at a price-to-earnings ratio of 15 times Brown's 2016 forecasts and an enterprise value to earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of 9.2.

That compares to a sector average of 18 times earnings and EV/EBITDA multiples of 18, according to Brown's calculations.

'The acquisition of Flux is in line with our strategy of building a differentiated, higher margin group by buying specialist businesses which fit with our organic growth initiatives,' says Acal chief executive Nick Jefferies.

You can read our in-depth March 2015 interview with Jefferies here.

Issue Date: 06 Nov 2015