Electrocomponents boosted by Liberum upgrade

Electrocomponents got a boost on Friday as Liberum initiated coverage of the stock at ‘buy’ with a 420p price target, which implies total return potential of 18%.

The brokerage said the arrival of a new management team last year has had a dramatic impact on the company’s fortunes.

The implementation of a new three-year restructuring programme, alongside initial signs of delivery, has seen the shares surge more than 50% so far this year.

“Despite this strong share price performance we believe that the potential upside from this strategy is yet to be fully reflected. Beyond this we also see structural opportunities from its unique position in both the industrial and electronic markets to drive long-term shareholder value.”

Liberum said the group was well placed to deliver full-year 2016 earnings before interest and taxes compound annual growth rate of 19%, with the vast majority of this improvement expected to be delivered by self-help measures, such as warehouse rationalisation, with revenue growth accounting for less than a quarter of the uplift.

The brokerage also pointed to innovations such as DesignSpark, which it reckons management will use to drive long-term value creation.

“We expect the company to talk more about its plans in this arena over the next 12 months, and anticipate similar attempts to create value from trends such as IoT and Big Data. Perhaps the best example of this will be in the field of predictive maintenance which is growing across a number of different industries. Beyond this we also see the growing field of Mechatronics – the integration of electronics with mechanical engineering – as providing the company with a long-term platform from which to grow shareholder value.”

Liberum said that while the shares are expensive relative to historic levels, Electrocomponents’ valuation relative to its growth potential leaves it screening positively compared to the majority of its global peers.

At 0955 BST, the shares were up 3.4% at 377.90p.