Numis lifts Electrocomponents target price

Electrocomponents rallied as Numis upgraded its price target to 295p from 275p and reiterated its ‘buy’ rating on Monday following a trading update.

The company said it expected full year profits to hit the top end of market expectations after a solid fourth quarter in which the UK recovery gained pace.

Encouragingly, third-quarter declines in North America eased off and continental Europe remained on the charge to counterbalance Asian declines and enable 2% growth in group fourth quarter sales and 3% for the full year.

The FTSE 250 company said the final quarter had seen further stabilisation in the gross margin, with the year-on-year decline reducing to 0.4% points, having been down 1.7% points in the first half of the year. This means, management said, that full-year gross margin should be down around one percentage point on the previous year.

“Management's pre-close trading update indicates that the full year 2016 pre-tax profit out-turn will be around the top of the consensus range, which we attribute to a combination of a strong fourth quarter sales per day (SPD) performance, currency, and having delivered ‘at least’ £6m of cost savings in the year to March 2016.

“We have upgraded our 2016-18 forecasts by around 2-3%, and our price target to 295p (previously 275p).”

However, given the macro-economic uncertainty, Numis left its SPD growth assumptions broadly unchanged.

Shares rose 6.87% to 259.26p at 1019 BST.