Stock of the day 16/09/2015 – Premier Farnell PLC

Likes its sector counterparts Oxford Instruments and Imagination Technologies, it has been a rocky year for Premier Farnell; the company announces its half year 2015 results on Thursday.

After a disastrous second half to 2014, which saw Premier Farnell tumble from a high of £2.41 to a low of £1.64, the stock opened 2015 at £1.77. A tumultuous January eventually saw the stock enter February at around £1.70, before a trading statement early in the month took 7% off its price to £1.58 after the company warned its operating profit for 2014/15 would be around £87 million compared to the £93 million seen the year before despite the promise of 3.3% growth in full year sales.

This fall didn’t last, and by the actual release of its full year results in the middle of March the stock had managed to climb to a 6 month high of £1.98. That report (for the year to February 1st 2015) was a mixed bag; sales of Premier Farnell’s most recognisable brand, its Raspberry Pi 2 mini-computer (a device that helps teach children the basics of computer science), were ‘40% ahead of levels expected at the launch’, building on the success of the first version of the product. Pre-tax profit, however, fell by 7.6% to £69.1 million, joined by the as expected £88 million in operating profit and 3.3% increase in total sales.


(Source: IT-Finance.com 16/09/2015)

The news caused a brief fall for the company, but a series of bullish analyst ratings and the promise of £10 million to £12 million in cut costs helped the company cross the £2 mark for the first time since the end of August 2014. It was to be a brief foray above the level, however, and for the rest of May and the first half of June Premier Farnell loitered around £1.90 to £1.95.

It was here that the stock’s trouble really began.

Despite a 5.4% jump in like-for-like sales for the first quarter, announced on June 18th, arriving alongside a 2.2% increase in the company’s American sales (both driven by the further success of the Raspberry Pi 2) Premier Farnell’s operating profit dropped by 4.2% to £45.5 million, prompted by a 1.2% fall in gross margins. This caused a 6% decline in the stock, and took the company back to its year starting price.

This decline didn’t really slow down in the following weeks, and on the eve of its half year trading update at the end of July Premier Farnell had fallen to £1.67. Things then went from bad to worse, as the company warned of a 10% drop in its first half operating profit, sending its stock 17% lower in a single day to £1.38.

Since then Premier Farnell has gotten rid of its CEO Laurence Bain, replaced (for the time being) by chief financial officer Mark Whiteling; this couldn’t stop the stock from falling further, however, with the company hitting a 6 and a half year low of £1.17 towards the end of August. Then, to top off a truly dismal few months, it was announced that Premier Farnell would be one of the 3 stocks demoted from the FTSE250 in the latest quarterly reshuffle, taking effect from September 21st. The company is at a current trading price of £1.31 (IT-Finance.com, 16/09/2015).

Premier Farnell has a consensus rating of ‘Buy’ with an average target price of £1.82.