HSBC upgrades Electrocomponents to 'buy' as sentiment shifts

HSBC upgraded Electrocomponents to ‘buy’ from ‘hold’ and lifted the price target to 430p from 240p as it pointed to the self-help story.

The bank pointed out that investor sentiment towards the company has shifted.

“A company that had been perceived as being doomed to dwindling returns, retreating from internet competition, has become a self-help story. Electrocomponents has refocused its product offering, restructured its cost base, simplified its discounts structure, and addressed its purchasing.”

As a result, the group is now less exposed to currency fluctuations and is striving to buy cheaper, hold for less and sell at a better price, HSBC said.

“This requires a sharp focus on what the customer wants, and meeting those demands. The success thus far is impressive, necessitating that we increase our numbers.”

The bank upped its pre-tax profit estimate for 2018 by 24% to £128m.

HSBC said that given Electrocomponents has years of under-trading to reverse, as long as the economy is supportive, it can continue to improve.

At 0952 GMT, the shares were up 2.4% to 373.90p.