Friday tips round-up: Electrocomponents, United Utilities

23rd May 2014 07:14

Electrocomponents and its smaller rival Premier Farnell are worth closely following. Since they distribute a range of electronics goods to engineers, a third of which are used in the development of new products, they are good bellwethers for the economy. Therein lies the rub. While international sales were up over the last year those to UK clients declined by two per cent. Continental Europe was particularly strong, with revenues up by four per cent. However, some of that has to do with the fact that its smaller rivals in its highly fragmented sector lack the financial muscle to continue investing. Furthermore, the group lacks any significant exposure to construction, which reinforces the message that its other main market - manufacturing - is not benefitting from the recovery in the rest of the UK economy. That is a dour message for those who are hoping for a rebalancing of the UK economy. "[The shares] selling on nearly 17 times earnings and yielding 4.3%, they do not offer any compelling reason to buy," writes The Times´ Tempus. United Utilities has been benefitting from investors´ shift towards low risk, high yield stocks due to the recent volatility of markets. However, its recent share price rise seems odd. For starters, shares in the sector tend not to move a lot unless there is the prospect of bid activity, which in this case there is not. On a more positive note, investors seem to be grabbing on to the possibility that the ongoing negotiations with Ofwat, regarding the company´s allowed rate of return on capital, will yield a favourable result. Even so, at 4.2% the current dividend yield is historically low, which lessens their attraction for for income investors. "The more adventurous might consider taking profits and investing elsewhere," Tempus says. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB