Electronics distributor Electrocomponents (ECM) has delighted the market with a profit beat from its 2018 year end results.
The company, which supplies tools, safety equipment, microchips and much else to industry, today reports full year to 31 March adjusted pre-tax profits of £173.1m. That's above the £171.8m that the market had anticipated, and it is £3.6m more than analysts had been expecting prior to last month's estimate upgrades.
It reported £128m of pre-tax profit in the previous year to 31 March 2017.
The increase in profits was not just down to distributing more electronic components, although it did that too. Revenues last year increased 12.8% to £1.7bn. But importantly, it is doing this more cost effectively and efficiently, which is helping profit margins to rise.
Operating profit margins increased 1.4 percentage points to 10.4% year on year. Management reckon they can get that up in to the mid-teens over the medium-term.
This has impressed investors, sending the share price shooting to the top of the FTSE All Share leader board with a near-12% rally to 703p.
NEXT STAGE OF IMPROVEMENT STRATEGY
Right on plan chief executive officer Lindsley Ruth has kick-started phase two of his Performance Improvement Plan, aimed at making the business fit for the 21st Century.
The first stage, now complete, is set to deliver £30m of annual cost savings going forward. The next piece of the strategy rethink jigsaw will is targeting an extra £12m a year of efficiencies by the first half of 2021.
Simplifying the business model in to three regions, including Europe, Middle East and Africa (EMEA), Asia Pacific and the Americas is part of that plan.
These regions will be supported by an estate of local distribution and services centres in the UK, US and a new facility in China.
FIRST ACQUISITION FOR TWO DECADES
Growth is not only going to come from internal fixes to the operating model, select acquisitions will play their part too. This represents a massive shift for Electrocomponents, which hadn't bought a business for 20 years before the £88m purchase of IESA, also announced today.
IESA is a maintenance, repair and operations marketplace for services, including sourcing, transaction processing and stores management.
It is currently mainly based in the UK but Electrocomponents global footprint offers scope for international expansion.
Analysts at Numis Securities raised their earnings per share (EPS) forecasts for the current year to March 2019 by 9%, thanks to the IESA purchase. That implies EPS of 34.6p this year, rising to 38.8p in 2020.
After today's steep share price rise it leaves Electrocomponents' stock trading on a current year price to earnings multiple of 20.3, whcih falls to 18.1-times 2202 EPS.
