Shares in electronic component distributor Electrocomponents (ECM) climbed 4% to a new 10-year high of 797p after the firm registered a drop in first half earnings but reinstated its dividend and pointed to positive growth as the global economy gets set to re-open.
Revenues were down 7.3% on a like-for-like basis in the first half to £909 million although there was a marked difference between the first quarter’s 11% drop and the second quarter’s 4% drop as customer demand recovered.
The firm’s transition to an omni-channel and service-led business has undoubtedly helped during lockdown, generating ‘significant market share gains and robust cash generation’ according to chief executive Lindsley Ruth.
Digital sales accounted for 62% of the group total in the half and grew faster than the whole in the second quarter, while sales of the firm’s own-brand RS Pro products also outperformed the whole to account for 14% of group revenue.
The gross margin slipped 0.5% to 43.2% due to inventory provisions and higher freight costs, which also weighed on operating margins, but adjusted pre-tax earnings of £74.3 million were marginally ahead of forecasts thanks to the firm’s ongoing cost control and streamlining programme.
Net debt was reduced by almost half to £114.8 million which means gearing is down to a paltry 0.5 times earnings before interest, taxation, depreciation and amortisation (EBITDA), and the firm reinstated dividends given ‘increased confidence in its business model and financial strength’.
Shareholders will receive an interim dividend of 6.1p for this year’s first half together with the previously deferred final dividend of 9.5p for last year.
While further lockdowns in some of its markets mean cost pressures are unlikely to ease short-term, the firm has seen a continued improvement in sales momentum in the first five weeks of the current quarter.
Analysts at Numis believe Electrocomponents is a long-term winner which can grow faster than the market post-lockdown and with the benefit of cost-cutting coming through have raised their 2021 and 2022 earnings forecasts following today’s update.
