Premier
Farnell: Some stocks just seem to set out to frustrate investors and
Premier Farnell is one of those. It seems that more often than not, there is a
rancid smorgasbord of reasons why they will not quite come up to scratch.
Today’s trading update for the just completed year to 1st February
2015 is another selection containing some bitter morsels. Group sales in the
fourth quarter were up 4.0%, an acceleration on the third quarter’s 2.7%, with
Europe being singled out as the star. However, Europe’s economies are insipid
right now (q.v. Draghi’s QE policy) and the improvement was due to the rollout
of a new web platform, but this will probably be largely a one off lift. On
margins they say that strategic moves and clearing out stocks of Raspberry Pi,
ahead of Raspberry Pi 2’s launch, hit margins in the second half to the tune of
1 percentage point. Hence operating profits will be in the range £86m to £88m
(a small miss) against £91.5m last time, with another £2m blow due if exchange
rates stay where they are. They also announce that, whilst targeted annualised
cost savings are being raised £10m to £12m, they will be achieved over two
years, not one, and be backend loaded.
So it looks like the eps will stay
marooned on a plateau between 14p and 15p for this year and the 2015/16 year,
to make a four year stretch. The shares have tanked today on the news and are
down 10% at 152p, near the twelve month low of 147p. At that price the PE is in
the 10x ballpark. The dividend is stuck at 10.4p and doesn’t look threatened,
producing a yield of 6.8%. Whilst this yield is large, the best total returns
come from those companies growing eps, with which to grow their business and
reward shareholders through progressive dividends. On that yardstick Premier
Farnell comes up well short and must do better.(Neil Cumming, 5th
February 2015)
These comments are not a personal
recommendation to deal. Any investments can fall as well as rise in value, so
you could get back less than you invest. I may have a financial interest in
some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk Twitter: @DividendPower
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