Like a lot of stocks, Electrocomponents has seen the value of its shares tumble since October when equities began to slump after hitting all-time highs.
US investment bank Jefferies reckons that if you’re looking for a company that has come through the sell-off with a “safe balance sheet, impressive management and significant self-help tailwinds”, you should look no further than Electrocomponents.
“Electrocomponents could deploy £500mln surplus capital over the next two years, has numerous self-help initiatives under a new management team, and the PE has flipped from highest in the peer group to the second lowest over the last 12 months,” read a note to clients.
Jefferies’ analysts, who have lowered their price target to a still-punchy 700p (from 740p), claim the £2bn company offers “attractive risk/reward”. They also point to the fact that management has been buying up shares of late as another positive indicator.
The London branch of Swiss bank UBS also thinks Electrocomponents looks good value after the recent 40% de-rating.
“Our 2019 Outlook does see a shallow industrial downturn ahead, but we believe the share price now undervalues self-help prospects: accelerated market share gains can sustain positive organic growth, while cost savings should continue margin expansion,” UBS analysts wrote.
That last point is perhaps the most important: UBS thinks margins have “good potential” to rise towards best-in-class levels over the next few years.
“Slower growth will limit operating leverage in the near-term, but we still see margin expansion due to cost savings, mix shift (e.g. own brand), and synergies.”
Shares jumped 4% to 520.3p early Tuesday.