Premier Farnell Share Discussion Threads

[bench2] 22/2/2016 16:27

Higher still on good volume , now with better balance sheet it could be a sitting duck . No news on broker upgrade or press tip yet . If there is a bid then someone has leaked ! All very suspicious given the gloomy sales and profits outlook , but you could argue that there is some serious short term performance from the bombed out , unloved stocks ... very big bounces in companies cutting divs and clearing the decks : Rolls Royce , Anglo Am , maybe PFL slightly fits the bill ?

[kemche] 22/2/2016 11:49

Anyone seen Simon? :)

[bench2] 22/2/2016 11:28

Big jump on decent volume , terrific chart pattern , and worth reading the Ed Jackson article kindly posted by MktSniper3 . This has been such a dog for so long that I only have a very small long position (now in profit) , and I can remember the massive value destruction when Farnell paid a stupid price for Premier . They have probably sold their best asset in Akron Brass .

[crt131] 22/2/2016 11:12

What happened there? Any news pending?

[crt131] 22/2/2016 11:12

oops - duplicate post

[market sniper3] 10/2/2016 17:43

Long on PFL Premier Farnell, had my eye on the chart for a while.

This article swayed me.

Stockwatch: This share looks too cheap
By Edmond Jackson | Tue, 9th February 2016 - 12:02

Stockwatch: This share looks too cheap Is there value in electronics distributor Premier Farnell (PFL), given the sale of just one division is fetching 40% of the group's near-£400 million market value? Or, is the de-rating prescient of a wider downturn ahead, with electronics distribution a significant indicator of the business cycle?
It was expected to happen, but the US sale of Akron Brass, an Ohio-based fire-fighting equipment business for US $224 million (£155 million) in cash, represented nearly nine times operating profit.

On those "attractive" terms, Premier's management can pursue "significant opportunities to improve the group's operational and financial performance", with a view to restoring profits growth in the financial year to 1 February 2017.

As global economic indicators waver, the stockmarket is cautious to assume this scenario given a down-dip for Premier's latest financial year, and with the board yet to confirm the extent of a dividend cut.

If a recession beckons, then this kind of stock can become a value trap - but if wider sentiment is overly bearish and fails to recognise the positive benefits of cheaper oil for economic demand, then it can recover in 2016. There are both technical and fundamental reasons why.

Chart assumes 'saucer' profile

The "saucer" is a technical pattern that, according to principle, indicates a stock's price is low and the downward trend has come to a close.

In practice, I would not assume economic life accords with deterministic patterns - there is always a risk of force majeure taking over - but charts can be interesting to assess probabilities, especially when you consider fundamentals also.

Premier's one-year chart largely accords with the theory, i.e. a sharp drop and "saucer" about three-quarters complete. Strict technicians might prefer more evidence of that, but it's certainly worth watching.

Valued lower than major rival

The one-year chart for £930 million peer Electrocomponents (ECM) shows far less de-rating, mainly due to a sharp recovery from 172p to 237p. That followed an early October trading update which affirmed that its largest business area, continental Europe, is doing well with 13% revenue growth.

Premier is more exposed to difficult markets in North AmericaHowever, North America slipped 3% and Asia Pacific was flat. In its last financial year, Electrocomponents' revenue profile was 35% continental Europe, 29% UK and 24% North America, while Premier's was 46% Americas, 30% UK and 25% Europe and Asia Pacific.

Premier's last trading statement on 17 December cited a 6.9% revenue drop in the Americas for its third quarter, offset by 14.9% growth in Asia Pacific and with Europe off just 0.5%. Group revenue edged up 0.5%, or 2.1% annualised.

So, while Premier is more exposed to difficult markets in North America, and this likely explains much of the valuation differential, it's not altogether a bad story.

Weighing valuations

What's perturbing in a macro sense is the extent of drop happening in the Americas (excluding Brazil) despite a 13.6% advance in sales for the Akron Brass fire-fighting equipment business being sold.

It exemplifies why stockmarkets are so edgy, after years of exceptional monetary stimulus in the US have apparently had little effect on its industrial base. And South America has its own problems, with low commodity prices and dollar-denominated debts.

Only a worsening economic situation can explain why Premier trades on such a low 12-month PEBut, weighing the valuations, only a worsening economic situation can explain why Premier trades on a 12-month forward price/earnings (PE) multiple of about nine times with its stock currently about 102p. A prospective yield of near 6% is covered nearly twice by forecast earnings, and there's strong cash flow backing.

By comparison, at 208p, Electrocomponents is on a PE near 16 times, yielding about 5.5% and covered just over once by forecast earnings.

It will be interesting to see what Electrocomponents has to say in a trading update due this Wednesday, but, even allowing for some differences in the businesses, that's some valuation contrast. The Premier forecasts are recent, so should significantly factor in earnings due to be lost from the disposal which was first mooted last year.

Balance sheets offer explanation

Both these groups have made acquisitions i.e. have accumulated goodwill and intangibles. Premier's end-August 2015 balance sheet shows they represented 105% of £81.7 million net assets.

At that point there were £59 million short-term financial liabilities and £229.4 million longer-term, hence Premier's recent gearing in the order of 335% versus 45% for Electrocomponents.

It would be encouraging to see directors back Premier's improving underlying potential with share purchasesHowever, Premier's interim income statement showed net finance costs clipping barely 20% off operating profit, and the latest £155 million disposal will radically improve the balance sheet. So the market appears to be overlooking this, or could not anyway anticipate the sale proceeds when the stock was de-rating.

A cash injection will improve Premier's risk profile and dividend security, in terms of circa 6.0p per share forecast for the full-year, which is consistent with a 40% cut in the interim dividend. Such a payout ought now to be supporting the stock, unless economies lurch lower.

'Buy' case improved

I drew attention at 105p in September during the early stage of what now appears a "saucer", with the stock testing 92p amid January's sell-off.

The Akron Brass deal deserves noting in this context, given the substantial proceeds. It would be more encouraging to see the directors back their claims as to Premier's improving underlying potential with share purchases - now they should be free of any restrictions around the disposal, although they may still apply with prelims only six weeks away.

One is quite reminded of Home Retail Group (HOME), where the market's caution as to its trading outlook has led to a buyer - Sainsbury's (SBRY) - exploiting aspects of underlying value. Premier shares may remain pressured if markets continue to sell off, but if a deflationary scenario applies then it becomes more of a target for rivals seeking growth.

For more information see their website.

Premier Farnell - financial summary Consensus estimates
Year ended 1 Feb 2011 2012 2013 2014 2015 2016 2017
13 months
Turnover (£ million) 991 973 952 968 960
IFRS3 pre-tax profit (£m) 93.3 105 69 74.8 69.1
Normalised pre-tax profit (£m) 93.3 88.2 74.7 77 74 58.1 64.3
IFRS3 earnings/share (p) 18 20.9 13.2 13.9 12.8
Normalised earnings/share (p) 18 15.8 14.8 14.5 14.1 10.9 11.4
Earnings per share growth (%) 68.4 -12.4 -6.4 -1.8 -2.5 -22.9 4.6
Price/earnings multiple (x) 7.2 9.4 8.9
Cash flow/share (p) 15.6 18.4 20 12.9 13.3
Capex/share (p) 5.3 6 6 3.7 5.8
Dividend per share (p) 9.6 10.4 10.4 10.4 10.4 6 6
Yield (%) 10.3 5.9 5.9
Covered by earnings (x) 1.9 1.5 1.4 1.4 1.4 1.8 1.9
Net tangible assets per share (p) -5.6 1.8 0.9 3.7 -2.8
Source: Company REFS

[eastbourne1982] 10/2/2016 17:26

Simon Templar QC,

ECM tells us nothing, anyone expecting good growth from PFL in the short term is living in cloud cuckoo land, if decent growth was on the agenda don't you think the share price would be a lot lot higher ?? The market has priced very challenging trading conditions into PFL.

If PFL achieved any growth at all in the next year I'd be delighted.

You seem to be expecting the world from PFL yet you wouldn't pay the current valuation, all seems rather bizarre to me.

[my retirement fund] 10/2/2016 17:22

I would expect a forward dividend of around 3 pence for 2017

[simon templar qc] 10/2/2016 09:16

Gary

Check out ECM trading statement today. Europe up 10% on last quarter but slowed from 13%.

Far East and US poor.

Overall trading low digit sales growth. Slowdown continues.

That is the concern for PFL its too early to call a return to growth imo.

The dust needs to settle and more clarity on trading and better macro visibility.

[garycook] 10/2/2016 07:21

STQC,Correct sit on your hands and let the dust settle for sure !!!

[simon templar qc] 09/2/2016 07:09

Garycook correct. Still a decent dividend and if I was certain the company was back on a growth curve I would probably buy. Something tells me to hold off at the moment however due to the macro economic picture.

[garycook] 09/2/2016 04:37

Simon Templar,Think you are correct on the Dividend,if you reduce the Final Dividend 40% the same as the interim.Then it works out at 3.6p.Making 6.2p in total.

[eastbourne1982] 08/2/2016 23:40

Simon,

Your market is making it's own mind up comment is a bit cheap imho.

The wider markets tanked today with many FTSE 100 co's dropping 3 - 6%, PFL was very unlikely to escape the carnage.

The share price rose 6 - 7% on Friday and even after the drop today is up nearly 10% in around a week, not bad going is it but they I'm only listing the facts.

Short term this is likely to be all over the shop however I'm happy to have a position here averaging around £1.06, I will look to add if we hit the low 90p area again.

[kemche] 08/2/2016 16:12

Any lawyer would know what it means. Aherrm.

[simon templar qc] 08/2/2016 16:02

What does conservuted mean?

[kemche] 08/2/2016 15:44

Is that a convoluted way of saying "No"?

[simon templar qc] 08/2/2016 15:42

Is LIDL a growth company ketchup? I would value your opinion!

[kemche] 08/2/2016 15:30

Did you manage to find my "tip"?

[simon templar qc] 08/2/2016 14:57

Actually I do like their free range chicken at Lidl and their premium range gooda, premium ginger cookies and cheesecake.

Cannot buy LIDL shares however and negative on UK supermarkets. But what do I know about growth companies?

[kemche] 08/2/2016 14:36

I never realised I was in the "Tipping" business!

I recall being in Green Compliance and then selling when APC bought them.

Hadn't realised that I had "tipped" APC - but then at my advanced age my memory is not what it once was. You wouldn't care to jog my memory and produce said "Tip"?

I do remember lambasting them at the woeful state of their Balance Sheet, Cashflow, and Loss & Loss account - without any recourse to broker notes. Maybe that is what you remember. I could of course be completely wrong. But then I usually am. Like here for instance.

Have you started shopping at Lidl since your contretemps at Sainsburys?

[simon templar qc] 08/2/2016 14:14

Tip.

Try Lidl Ketchup its cheaper.

I prefer growth companies myself like APC which is set to benefit from massive growth in energy solutions and was tipped in Techinvest over the weekend, the one you tipped then sold out of!

[kemche] 08/2/2016 13:58

ST, So you can read my comments but choose not to answer........

I could not but change my mind having read your in-depth analysis of the company. I am always willing to learn from my betters, especially esteemed professional High Net Worth individuals such as yourself.

As you are particularly interested in my trading then I shall be candid with you. I have taken a massive loss and am crying into my coffee as I type. Only had I listened to you. But hey, one lives and learns.

Thanks for the concern shown though, much appreciated.

[simon templar qc] 08/2/2016 12:46

No comments from Kenche has he taken a quick profit and changed his mind about the future having reviewed the matter?

The market is making its own mind up!

The fact of the matter is there has been one dividend cut there will be another dividend cut and who knows more dividend cuts in order to see dividend cuts of 1.5 to 2 times cover.

In the meanwhile PFL is now x growth with lower turnover short term and growth upside is reliant on macro economics.

[simon templar qc] 07/2/2016 09:41

East the cut in the interim dividend is the first cut the final dividend will be cut in order to pay a circa to circa 3 pence from circa 6 pence making about 6 pence in total.

That is two cuts not one.

The final cut has yet to be announced by the company.