The current period will see higher investment to boost efficiency, funded by cost-saving programmes, with higher capital expenditure driven by a data centre project in Germany, the broker noted.
The first six weeks of the second half of the current fiscal year saw a positive performance in the industrial and RS Pro divisions, “largely offset” by weakness in electronics, while the company is also investing in the supply chain and technology, hoping to achieve long-term gains.
The electronic products distributor reported half-year group gross margin growth of 43.7%, lower than last year’s 44.4%, due to weaker performance in the connectors and electromechanical products as well as the launch of OKdo. The latter, launched in April, is an Internet of things brand that is expected to register strong growth in the second half, although it will be offset by “purchasing and pricing” actions, resulting in a “more modest” second-half margin decline.
Half-year revenue up, profits down
Like-for-like (LFL) revenue in the six months to 30 September was up 4% compared to the same period last year, to £978mln, while adjusted operating profit dipped 2% to £105mln, as LFL adjusted operating costs rose 4% to £322mln.
Net capital expenditure widened 61% to £37mln, while free cash flow dropped by two-thirds to 10£mln.
“The first half saw good revenue growth and strong market share gains in spite of an uncertain market backdrop,” said chair Peter Johnson in a release.
“We will continue to drive share and actively manage our operating costs while increasing investment in strategic initiatives to position the business for the significant longer-term market opportunity.”
Different brokers have different views
Peel Hunt reduced its full-year profit before tax estimate from £222mln to £219mln, mainly for foreign exchange headwinds.
“The rate of growth looks set to slow down in H2… which echoes what the rest of the sector has been saying,” analysts said in a note, leaving the target price at 650p.
In contrast, Liberum cut its target price from 810p to 780p, keeping the ‘buy’ recommendation in view of long-term opportunities.
“The shares have been strong into this update and may see some short-term pull-back,” analysts at the broker, who have also trimmed the profit before tax estimate from £229mln to £222mln, said in a note.
Shares fell by 11% to 627.6p on Tuesday morning.