Investment: Electrocomponents looks east for growth

YESTERDAY'S half-year results from Electrocomponents, the electronics distributor, were nothing to write home about, although they put its rival Premier Farnell to shame. Sales were up just 3.5 per cent at pounds 330.3m and profit before tax just 1.9 per cent ahead at pounds 53.4m.

Even allowing for the strength of sterling and the fact that this year had two fewer trading days, sales growth was 6.6 per cent and profit growth 2.7 per cent.

Electrocomponents has, however, stuck to its knitting. It has looked east to Europe and China, and to greenfield growth, rather than making an expensive acquisition in North America.

Events in the Far East have had relatively little direct impact on the business and the Chinese market has remained relatively strong.

The pounds 30m move into Japan was always likely to take five years to reach break-even point but it is on time and under budget.

Inevitably, confidence in the main UK and European markets has been affected. Sales in France, Germany and Italy grew by 15-25 per cent but in the main UK market sales were up just 1 per cent.

Trading conditions have become noticeably tougher in the last two months. Most sales go into maintenance work and it is all too easy for customers to defer such spending. But the company's own capital expenditure is likely to drop below pounds 30m this year, with the new depot in Nuneaton continuing to supply markets in both Germany and Italy.

Profit forecasts have been heavily trimmed over the last six months but yesterday analysts were sticking to a current figure of around pounds 120m and earnings of 19.1p this year, edging up to pounds 128m and 20.3p next year.

The shares fell 15p to 387p, which values them at just under 20 times next year's forward earnings. That looks high enough for now.