Ray of sunshine lifts the spirits
Figures from Premier Farnell are always hideously complicated and present as a blizzard of statistics. This is because the company, as the second-biggest distributor of electrical and electronic goods, is highly sensitive to global economic trends, reacting immediately to any improvement or downturn, and so short-term trends are closely monitored.
Premier signalled the start of what looked like another global economic downturn last summer and the shares suffered accordingly, as the graph shows. Discerning a trend from the mass of statistics, the company is losing sales, but not as fast as the core market is falling.
Revenues were off by 5 per cent in the first quarter to end-July, 1.6 per cent in the second and 3.3 per cent taking the first half as a whole. Industry statistics suggest that during the second quarter the semiconductor market fell by about 10 per cent in the US and Europe and was in barely positive territory in Asia Pacific.
Premier therefore bucked this trend in all three, with the best performance in the US, and all three also saw that August upturn. Pre-tax profits, however, were down almost 16 per cent to £39.7 million. This is very much a service business, trying to provide engineers with a full range of products, and while the highly competitive market put pressure on prices, Premier sensibly decided not to walk away from less competitive business to retain customer loyalty.
The dividend is held at 4.4p, giving the shares the support of a yield of about 5.5 per cent. They sell on about 12 times’ earnings and are a straight early recovery play; my view is that the recovery may be a way off. Hold.
Chris Spooner is a former fund manager and analyst who now runs a quoted company, Sinclair IS Pharma, so there is interest in how someone who’s job was to deliberate on how chief executives should run their companies would manage it himself.
So far, so good. Mr Spooner arrived at the end of 2009 and decided to slim down the number of compounds that the company distributes and head into higher-growth emerging markets. The share price has not done much, though, above 40p at the end of 2010 and up 1p to 27½p yesterday after full-year figures to end-June that are sufficiently full of one-offs to be of only historical interest.
But in that financial year, the five biggest products provided half of sales, against a third three years ago, and the top six absorbed 80 per cent of promotional spend. Sinclair is at the more consumer-oriented end of the pharma spectrum, selling skincare and wound treatment products rather than lifesavers.
For the record the company, which in May last year completed the purchase of IS Pharma, turned losses last time of £1.3 million into earnings before one-offs of £4.8 million. There is no dividend, and little prospect of one — the strategy is all about fast growth into those chosen markets — and the chief executive’s former colleagues in the analysts’ community are looking for pre-tax profits in the £12 million area by 2015.
Sinclair did announce two significant moves yesterday. The company is closing its French factory, which will mean its entire range will be produced by third parties.
It has signed a second deal to have its compounds sold outside its core European markets, with a British company to develop and distribute dermatological products in Mexico, after a similar deal in the Far East. This is one of those stocks whose potential is huge but unproven; a speculative punt, then.
Both the biggest suppliers of temporary storage space have put a break on new openings. Big Yellow Group thinks it has as many as it needs; the market leader, Safestore Holdings, had just opened one in suburban Paris but says there are no others planned.
It is not that the market is saturated; there are twice as many square feet of storage space per head of population in London as in the rest of the UK, but the capital still falls well behind the US. But such companies had previously been able to rely on a booming housing market and are now having to be more canny about how to get the most out of existing outlets.
For Safestore, this means variable rental rates that take account of the local economy. The group has 135 stores, including 98 that are wholly owned in the UK and 25 in Paris. It has built about 20 since it was floated five years ago by private equity with hefty debts; these take time to fill up and reach their full potential.
That differential pricing, and a hit from the lower euro, sent the average rental rate almost 6 per cent lower in the third quarter to the end of July, but revenues per square foot were correspondingly higher and quarterly revenues, at constant exchange rates, grew by 5.7 per cent to £24.9 million.
Strong cashflow and the lack of much further capital spending could imply further rises in the dividend, while the shares already yield more than 5 per cent. Worth locking away, so to speak.
Aggreko, the apparent perpetual motion machine that provides temporary supplies to economies that cannot build their own power stations fast enough, has reorganised into three units. These will cover the Americas; Europe, the Middle East and Africa; and Asia, each about a third of the business. I had begun to suspect that Aggreko’s ridiculous rate of growth was putting a strain on management, so this should be a positive move.
Given the level of scrutiny focused on the government bond markets generally, particularly after the German Constitutional Court gave the go-ahead to the eurozone bailout fund, UK gilts have been giving back some of their recent outperformance, according to Citi’s Jamie Searle. The December gilt future settled 31 ticks higher at 119.47.
Bet of the day
The online fashion retailer Asos has a trading update next week. Next and John Lewis are finding success through their internet channels, although tough trading conditions are likely to continue. With shares up by 60 per cent this year, many may be poised to take profits even if the numbers are good. The GFT Markets price on Asos is £20.12 to £20.20.
Tiddler to watch
From black gold to the real thing; gold trading is booming. The AIM-listed African Consolidated Resources has just announced a 524 per cent rise in its JORC estimate to 3.2 million ounces of gold at its Pickstone-Peerless project in Zimbabwe. The company aims to start production in the next 12 months. The shares were up 5 per cent at 2¾p.
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