Somebody had to put Premier Farnell out of its misery. A takeover by Dätwyler, of Switzerland, would be good enough news for its customers, engineers whose main concern is that the range of electronic goods on the shelves is wide enough to meet their needs and can be delivered straight away. The merged company will have more than a million products in its warehouses, which should keep them happy.
As for investors, this is about the best outcome they can expect after two profit warnings, a cut dividend and a departed chief executive, Laurence Bain. The shares were becalmed at or around their seven-year low. It was going to take a long time for the restructuring to return the share price to 165p, which is the cash on offer from the Swiss.
Investors also get to keep the 3.6p final dividend that is payable this month. A glance at the share price graph shows that if someone else had wanted to come in, they have had plenty of opportunity since last autumn. No one else is going to: the larger Electrocomponents has enough on its plate, although there was no compelling reason on competition grounds why the two quoted companies should not be put together.
Premier is going out at 15 times this year’s earnings, which is not hugely generous. The first-quarter figures, pretty mixed and with a poor performance in the Americas, show why. The problem, as I have suggested in the past, is that such businesses have little forward visibility of earnings, based as they are on orders transacted on a day-to-day basis. It is pretty much impossible to work out, then, what the forward earnings multiple is likely to be for the next financial year, let alone the one after that.
In addition, tiny movements in revenues, whether positive or negative, can have a disproportionate effect on the bottom line, making earnings even harder to predict. Premer shares, up 54¾p at 164p, are matching the terms on offer, which tells you how likely the market sees a counterbid. Sic transit. For Electrocomponents it could go either way, with the bigger new rival possibly distracted by the integration process, though the market was taking a dim view yesterday.
MY ADVICE Hold
WHY Swiss bid is about the best outcome investors could hope for, though it is not overly generous, and no further approach is expected
Ashtead Group
Share buybacks are often an indication that management has run out of ideas for the business. It is hard, though, not to agree with Geoff Drabble, chief executive of Ashtead, that with the shares trading on a lowly forward earnings multiple of just 11 and capital spending commitments falling sharply, this is probably the best thing to do with spare cash.
Ashtead shares have recovered since the lows of below £8 reached in February and, up 28½p at 985½p, were one of the few risers in the FTSE 100. I suggested at the time that the fall was overdone and they should be bought. There is not a lot in the full year or fourth-quarter results to justify that lowly rating. A combination of rising end markets, more stores becoming mature and reaching their full margin potential and some bolt-on acquisitions and further store openings will allow revenue growth in the low teens.
Margins in equipment rental are at 46 per cent, the plant fleet has been renewed and so that capital spending will fall and there is litttle sign of slowing at Sunbelt, the American operation that forms the majority of the group, or in Britain. Ashtead surprised the market with a 48 per cent dividend increase, though it has never been a high-income stock and the historic yield is 2.3 per cent. Again, it makes sense to increase the payment.
The proposed buyback is just 4 per cent of the market capital and can be suspended if the share price rises to beyond a level when it no longer makes sense, which I rather suspect it will in due course.
MY ADVICE Buy
WHY Shares still look undervalued on fundamentals
Halma
It is not inconceivable that at some stage Halma will join the FTSE 100. Its £3.5 billion market capitalisation puts it a bit behind the promotion zone, but it spent £203 million on acquisitions last year, mainly on four companies, including the biggest deal in its history, that of an American maker of digital means to keep track of patients, doctors and nurses in hospitals.
If Halma joins the elite index, it will be among its least well known constituents. It is an old-fashioned conglomerate based on four businesses in areas such as medicine, environmental technology and safety, all of which operate independently in trying to source purchases of private companies.
The startling thing about Halma is its reliability. The company makes much of the fact that it has raised dividends by 5 per cent or more for 37 years. The shares have been rising strongly since the turn of the decade. Last year organic growth was about 6 per cent, currency factors added another 2 per cent and those acquisitions contributed a further 3 per cent. The shares, off 1½p at 933p, do not come cheap on 25 times’ earnings, but I would still back them in the long term.
MY ADVICE Buy
WHY Rating is high but the long-term record is superb
And finally. . .
Norcros, a maker of showers and bathroom equipment, has been plugging away in markets that are not always helpful, such as that served by its Johnson Tiles business, and against a drag from the low value of the South African rand. The company has even managed a couple of acquisitions. Full-year revenues were up by 11 per cent at constant currency rates and pre-tax profits by 40 per cent, an encouraging result and effecting a 2 per cent rise in the share price even in yesterday’s soggy markets.
