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Two heavyweight brokers think Electrocomponents looks good value after recent fall

Electrocomponents has seen more than a third wiped from its value since October, but UBS and Jefferies think the FTSE 250 group is well-placed to regain some of those losses
electricals
Electrocomponents distributes hundreds of thousands of electrical products around the world

Electrocomponents PLC (LON:ECM) powered higher on Tuesday after two teams of heavyweight analysts upgraded the firm to ‘buy’.

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.

READ: Electrocomponents upgraded by Peel Hunt after solid interims

“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.

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