Premier Farnell - simply not that premier

Premier Farnell: Today’s update for the first quarter, to 3^rd May 2015, is a mixed bag. Overall group daily sales pleased, growing by 5.4%. Looking at the main segments within this, the on-line community site element14 grew 5.3%, although this was boosted by high (but lower margin) Raspberry Pi growth (up 110%) after a new model launch. The European growth of 5.9% blended an uplift of 12.2% on the continent offset by a weak UK performance and was a slowdown on Q4’s figure of +7.2%. Americas growth was 2.2%, with the edge taken off by a slowdown in North America towards the end of the period. However, a 120bps gross margin decline from the fourth quarter level, due to currency moves and lower margin Raspberry Pi sales, left group gross profit down 2%. Some of this drop was clawed back by cost cutting, with 170bps cut off the SG&A line (moving from 28.6% to 26.9% of sales) and further savings expected in the second half. Looking ahead the group sees first half adjusted operating profits slightly down on last year, but that for the full year they will haul back to “broadly in line with the prior period”. Normally that ends up meaning ‘down a bit’.

So this is yet another update from Premier Farnell that reveals a painfully slow rate of progress. As with Electrocomponents, sales growth is patchy and anaemic, with margins under pressure. Last year’s eps were 13.8p and it feels like matching that will be an achievement this year. If they do that then, at today’s soggy 181p, that is a PE of 13.1x. The comfort is always the 10.4p dividend, which might not grow, but is a yield of 5.7%. The concern here is that a new broom is in at Electrocomponents and if there is a cut there, then any element of ‘keeping up with the Jones’ disappears from Premier’s boardroom discussions. Overall Premier is a difficult stock to get excited about for income growth investors, but if the yield holds then I suppose it will appeal to some. The wild card as ever is that the two companies look to see if they would be allowed to jump into bed with each and set about the cost base in earnest. However, playing ‘fantasy takeover’ can be frustrating and very drawn out…... (Neil Cumming^, 18^th June 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