Electrocomponents cut to 'sell' by Canaccord Genuity

10th Jun 2015 12:58

Canaccord Genuity downgraded Electrocomponents to 'sell' from 'hold', pointing to the 19% rise in share price since mid February and the company's recent results for the year ending March 2015.It noted that since 2012, return on invested capital has fallen from 19% to 12% in 2015, mostly due to margin pressure, loss of market share in the UK and significant iT capex."A new chief executive officer has been appointed and has announced that a revised strategy is expected to be unveiled in November. We believe the current share price is factoring in quite some improvement, some might argue a remarkable improvement," said Canaccord.It said the shares are now priced for the perfect execution of an exceptional-cost free turnaround, where it believes "the new strategy is somewhere between brainstorming and drafting."In the meantime, shareholders are being compensated for their risk with a dividend which is costing the company all of its free cash flow, it said. "Any further returns setbacks or investment in exceptional costs to execute a new strategy could put further pressure on the sustainability of the level of the dividend," added the broker.Canaccord left the target price unchanged at 200p.At 13:15, the shares were down 0.8% at 237p.