Morgan Stanley starts RS Group at 'equalweight'

"While overall market growth is pegged to GDP growth, large players can outgrow the market by leveraging scale and pursuing M&A," MS said.

"We estimate RS Group's balance sheet could support £860-1100m of M&A spend over FY23-25e."

It said that own brand penetration, which carries higher gross margin, is 13% and has room to grow, with peers averaging around 20%, "and this along with digital growth and operational gearing could deliver a mid-teens margin in the medium term".

Still, MS also noted near-term risks from the cycle and pricing.

"RS Group supplies low value but critical industrial and electronic components, which are not tied directly to customers' own volumes (average order value is circa £250)," it said. Exposure to the more cyclical electronics end market is 15% lower than it was in 2008-09, but is still 22% of revenues, and there are signs of volume pressure, it added.

It also said the shares are unlikely to perform until a new chief executive is appointed.

"We like the long-term potential of the business and could become more positive if hard economic data continues to trend above the soft data, marking a change in the macro outlook," the bank said.

"Our bull case is 1,300p. Conversely, an industrial recession and price deflation could squeeze volumes and gross margin, driving the shares towards our 720p bear case."