Someone glancing at a trading screen yesterday might have thought that their terminal was in need of the sort of new parts that Premier Farnell provides.
For despite reporting a 36 per cent collapse in pretax profits and a 15 per cent slide in underlying sales – its worst quarterly performance in seven years – shares in the mid-cap distributor of electronic components rose more than 5 per cent – one of the best gains in the FTSE 250. The stock market was less concerned by the numbers for the three months to April 30 – which continued to show the adverse effects on demand of heavy destocking in the electronics industry – than comments on recent trading. Specifically, business in April was better than in March and that trend had extended into May. Harriet Green, Premier’s energetic chief executive, was careful not to call the bottom, instead talking of a “stabilisation” and “recalibration”, rather than an upturn.
But taken together with the anticipated benefits of cost-cutting measures that have still to feed through and the solidity of the company’s gross margins, which held impressively steady at 39.4 per cent, investors had less hesitation in starting to price in the recovery that Ms Green has yet to confirm.
That is not wholly unreasonable. Premier’s sales have fared better than its global peers in recent quarters, implying that it continues to take market share. The three-year-old strategy of Ms Green – shifting Premier’s focus away from maintenance and repair markets towards higher-margin niches in design that make greater use of electronic gadgetry and pushing more sales through the internet – is clearly taking effect. Design activities now account for 65 per cent of sales in Europe, with 54 per cent transacted online and should continue to grow given initiatives such as Element14, the company’s newly established networking site for electronics engineers.
The task now is to lift Premier’s recalcitrant US business to similar levels. But the more compelling macroeconomic case is that Premier’s fortunes usually track the US Purchasing Managers Index – and this is starting to improve.
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At 136p, up 7p, the shares trade at 12 times earnings and yield nearly 7 per cent. Buy.
London & Stamford
Not all quoted property stocks have been tapping their shareholders for cash. London & Stamford (L&S), which is listed on AIM, has spent the past five months spending it. This Guernsey-domiciled former shell has been completing big-ticket property deals with brio, mopping up the London headquarters of Denton Wilde Sapte, the law firm; taking a 16 per cent stake in Meadowhall, the Sheffield shopping centre, from British Land; and buying a newly built office block in Leeds. It has shelled out £245 million since January, with two further deals announced this week alone: a £60 million retail park at Aintree racecourse, purchased from Land Securities, and a £20 million Somerfield distribution centre.
L&S’s advantage is its lack of baggage and a large war chest. Anticipating a sharp slide in property values, the company raised £248 million in late 2007 and bided its time on the view that bargains would emerge. With prices down 40 per cent from their peak and rental yields approaching double digits, L&S is putting its strategy to work, buying properties with solid tenancies and unexpired leases running for 12 years and more. Thus, L&S has been the only quoted property company to have created value for shareholders in the 12 months to March 31.
Its recent burst of activity rendered yesterday’s full-year figures somewhat meaningless, other than providing a reminder that it retains more than £200 million of firepower. L&S is run by the same team that built Arlington Securities and Pillar Property, both of which were bought at the bottom and sold at the top, and comes with a loyal City following, suggesting that sellers will be thin on the ground and further funds easy to come by. So though at 119½p the shares trade at a 17 per cent premium to historic net asset value and yield 3.4 per cent, they are worth buying on weakness.
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Park Group
Remember Farepak? Followers of Park Group, the rival Christmas hamper specialist, might find it hard to forget. When Farepak collapsed three years ago, leaving thousands of lower-income families in the lurch, the popularity of Christmas savings schemes seemed to follow suit.
Park’s order book tumbled by nearly a third the following year and, despite subsequent additional measures to safeguard customers’ cash, it remains substantially below 2006 levels. Not that this has stopped Park’s sales and profits from pushing ahead. Yesterday’s full-year figures showed revenues from continuing operations up 11 per cent and pretax profits up 24 per cent. The dividend was raised 10 per cent.
The encouragement is that, notwithstanding Farepak, the hamper business – collecting an average £374 a year from customers – appears relatively defensive, with orders for Christmas 2009 no worse than 2008. The greater pressure comes from rock-bottom base rates, which means Park earns less from the client cash it keeps on deposit. Its other business – gift vouchers through which companies reward customers and staff – returned to growth, helped by new signings such as Anglian Water and TUI.
But the lingering attraction lies with the 6 per cent return from the dividend, whose sanctity is explained by the 67 per cent stake retained by founder Peter Johnson, better known as Everton Football Club’s one-time chairman. At 22p, or ten times earnings, and the company’s cash equal to one third of its stock market value, hold for the yield alone.