Thursday 7 August 2014

Analysis of Premier Farnell

Premier Farnell, a British service and distributions company

Company: Premier Farnell

ISIN GB0003318416 | WKN 863981

Business: A British service and distributor of technology products and systems that help their customers with researching new technologies, design of electronic products, or finding parts to repair existing systems. Here you can take a closer look at their brands and what each brand stands for.

Active: They operate in 35 countries and are present on each continent.

P/E: 12.7

Contrarian values of P/E, P/B, ROE as well as dividend for Premier Farnell

The P/E of Premier Farnell is semi-acceptable with 12.7 but the P/B is far too high with 7.7 and this then also gives us a no go from Graham. The earnings to sales are ok with 5% but the ROE is excellent with 60.5%! The high ROE and P/B makes it look a little like IBM that is turning the ship around and becoming more and more of a service company. The book to debt is down at a ratio of 0.2 which I do not like but also that is similar to IBM (see analysis of IBM 2014).
In the last five years they have had a yearly growth rate of 3.8% which is very good and this then gives us a motivated P/E of 13 to 16 which means that Premier Farnell is today slightly undervalued on the market.
They pay a very nice dividend of 5.9% but this does however represent almost 75% of their earnings so they better start pushing up their earnings to be able to keep up paying the nice dividends.

Conclusion: Graham gives a direct no and I find it interesting to see a service company looking so similar in their key figures to IBM even though the revenues and earnings are miles apart. I still do not know what to make out of it but I will definitely keep them in mind.

Is there any engineer that have worked with Premier Farnell and could comment on their quality of service?

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PoomK said...

I always order tools and components at Farnell/Element14. Their service is probably the best out there (some require only credit cards, some have too long delivery time). The business does not require much capital to operate, as you can notice from very high ROE. It is a positive cash-flow business, where you get money from the customers first, and pay the suppliers later. This is a superb company in my opinion.

The only downside, which is quite a serious one, is that the company focuses only on business-to-business market. But the startups and hobbyists market, which is the fast-growing market in this decade, has been ignored.

Fredrik von Oberhausen said...

Thanks for your feedback PoomK!

So an excellent company with the potential to step into a new market. I wonder why they are not already there?